Middle Market Growth - May/June 2015

Growth MIDDLE MARKET

// MAY/JUNE 2015

CYBER EXPERTS OFFER TIPS TO STAVE OFF A MIDDLE-MARKET BREACH A QUALIFIED OPINION: MICHAEL DAL BELLO, INVESTMENT PARTNER, PRITZKER GROUP PRIVATE CAPITAL

Incubating

Drug Innovation Cytovance Biologics plays a behind-the-scenes role in developing lifesaving drugs

A publication of

NAVIGATING HOW TO USE THIS APP

CONTENTS

BOOKMARK

View the current issue.

Save an article to read later.

SEARCH

LIBRARY

Easily search the issue for keywords.

Return to the library to view past issues.

SHARE

Share an article via your social network.

COLORED TEXT

Colored text indicates a link.

NAVIGATOR

Navigate through the issue by page.

Are you reading this on your desktop? Take Middle Market Growth on the go and download the app now from the iTunes Store, Google Play and Amazon Appstore.

INTERACTIVE BUTTONS MORE

SLIDESHOW

JOIN IN

EMAIL

PLAY

NAVIGATE

Tap to read more or go to a website.

Tap to pop up a slideshow of images.

Join the conversation on social media.

Send an email to the email address listed.

Tap to play a video or audio.

Tap buttons to navigate through a section.

CUTTING EDGE Pointing the way to success. Forward.

Weaver helps manufacturing and distribution companies get their edge—and keep it.

The largest independent accounting firm in the Southwest and a top-40 firm in the U.S. Get to know Weaver.

Austin • Dallas • Denver • Fort Worth • Houston Los Angeles • Midland • Odessa • San Antonio • Stamford

weaver.com

EXECUTIVE SUMMARY DOUG TATUM // Chairman, ACG Global Board and Newport Board Group

The Doctor Is in

T

he May/June issue of Middle Market Growth is focused on health care and pharma—a broad market segment rife with deal activity and exciting investment opportunities ranging

from companies developing new drugs to those building innovative medical devices and high-tech solutions for patient tracking and care.

Our cover story looks at Cytovance Biologics, a middle-market firm in Oklahoma City that uses its sophisticated laboratories and in-house expertise to develop early-stage vaccines on behalf of pharmaceutical companies. You may remember the film “Extraordinary Measures” starring Harrison Ford; Ford’s character was based on Cytovance founder and current chairman, scientist William Canfield.

We also take a look at the health care deal environment in Europe and offer tips to safeguard your organization from cyberattack.

Speaking of health, I’d like to draw your attention to the improving condition of ACG and its members. Having just wrapped up another highly successful InterGrowth® conference in Orlando, ACG is moving forward with a host of other important initiatives.

ACG is rolling out an exciting new partnership with Insperity, a national provider of outsourced human resource solutions such as payroll and benefits management. ACG and Insperity are developing customized Insperity services for ACG members, specifically designed to support add-on acquisitions and address the multitude of issues involved with synchronizing benefits and compliance. ACG Global has trusted Insperity to handle the association’s HR administration benefits for the last 10 years.

Across the country, some 25 ACG chapters are now wrapping up their annual ACG Cup case study competitions. These events give students from leading MBA programs—and in some cases, undergraduates— real-world experience in mergers and acquisitions, investment banking, financial advisory and private equity, helping to educate aspiring deal-makers.

On the policy front, ACG is localizing its national public policy agenda with a grass-roots initiative; as part of this effort, a policy summit held at the ACG Western Michigan chapter in March garnered significant interest from local media.

This year ACG also launched its Private Equity Regulatory Taskforce; PERT is made up of middle-market CEOs, CFOs, COOs and attorneys who manage the often-complex financial compliance rules for their firms.

PERT will have its first D.C. fly-in this month; the group will help to educate Congress and the SEC about pressing issues facing the industry.

Initiatives such as ACG’s push for comprehensive business tax reform, legislation that fosters capital formation, and the reduction of onerous regulatory burdens, among other issues, remain at the forefront of ACG’s mission to drive growth in the middle market. //

THANK YOU A C G G L O B A L PA R T N E R S O F F I C I A L S P O N S O R O F G R O W T H SM

GROWTH LEADER

GROWTH CHAMPION

GROWTH SUPPORTER

F O R M O R E I N F O R M AT I O N O N PA R T N E R S H I P S , C O N TA C T M A G G I E E N D R E S AT M E N D R E S @ A C G . O R G / 3 1 2 - 9 5 7 - 4 2 5 7 © 2015 Association for Corporate Growth. All rights reserved.

EXECUTIVE SUITE TOM McGEE // National Managing Partner, Deloitte

Q

WHAT’S THE OUTLOOK FOR DEALMAKING IN 2015?

TOM McGEE: 2015 is off to a strong start and it seems robust

deal activity will continue, if not intensify, in the near term. Sectors driving sustained growth include life sciences, oil and gas, technology, process and industrial products, and consumer goods. Geographically, the United States looks to remain the center of activity, given its improving economy, the questionable stability of emerging markets, and aspirations of European companies to escape their own sluggish economies.

Companies and investors should watch for geopolitical risk and other issues impacting the broader global economy such as falling oil prices and the rising U.S. dollar. It’s also important to keep in mind the complexity of deals and the numerous factors that play into a deal’s success— strategy and planning, due diligence and data analytics, and integration.

Q

WHAT’S DRIVING THIS SPIKE IN DEAL ACTIVITY? IS IT THE IMPROVING ECONOMY, OR ARE OTHER FACTORS AT WORK? TM: The improving economy is certainly a welcome change compared to weak U.S. economic growth over the past few years. The strong stock market, as well as large stockpiles of cash, has been used to finance many of the mega-deals we’ve seen of late. The recent rally in the U.S.

BIO //

dollar could lead to a spike in cross-border deals as well, and we expect

TOM McGEE is national managing partner of Deloitte’s Merger & Acquisition Services, overseeing services to corporate buyers and private equity investors. He has extensive experience serving mid-market public and private companies as well as some of Deloitte’s largest clients. McGee is a frequent commentator on CNBC, Fox Business Network and other media.

North America to remain the leader in M&A around the world in terms of deal volume.

All in all, companies are pursuing M&A as part of their growth strategies to obtain new customers, enter new geographies, and offer new products and services. These goals can be achieved organically over time, but M&A allows for a stronger market position more quickly.

Continued on next page

EXECUTIVE SUITE TOM McGEE // National Managing Partner, Deloitte

Q

WHAT ARE THE MOST IMPORTANT FACTORS EXECUTIVES SHOULD CONSIDER WHEN EMBARKING ON M&A TO CAPITALIZE ON THE VALUE OF TRANSACTIONS? TM: First off, deal success often hinges on a well-planned and -executed integration. Our “M&A Trends Report 2014” found the vast majority of corporate executives believe at least some portion of past deals failed to generate the expected return on investment.

This insight led us to dig deeper into post-deal integration issues. The findings of our “Post-Merger Integration Report 2015” revealed that only 35 percent of respondents said their integration efforts were very successful; almost one in five executives surveyed reported their integration failed to reach initial synergy targets.

So it’s important to keep the following drivers in mind to achieve successful integration: a formal integration plan with clearly defined targets; a focused cross-functional team with strong leadership and executive support; clear accountability and criteria to measure progress; and a communication plan for both employees and external stakeholders.

Q

IS THERE A CHECKLIST EXECUTIVES SHOULD USE TO HELP CAPTURE DEAL VALUE?

TM: No two transactions are the same. However, capturing deal value is about more than finances, and some best practices are important to keep in mind. At Deloitte, we like to point out that success begins with developing a strategic framework to confirm goals, creating a blueprint to mark progress and establishing an end-state vision.

Our “Post-Merger Integration Report 2015” uncovered five distinct post-merger best practices that helped determine deal success. Having an understanding of the synergies a deal aspires to capture is arguably the most important of those. At Deloitte, we have seen several common threads among companies that have successfully integrated acquisitions and mined synergies, including holistic planning, broad due diligence and appreciation of the complexities of execution across all aspects of operations. //

MIDPOINTS RANDY SCHWIMMER // Founder and Publisher, The Lead Left

Take Two and Call Us in the Morning

G

eneric drugs were once the pharmaceutical versions of knockoffs: cheap, low quality and unreliable. Not anymore.

From Allegra to Zyrtec, formerly patented meds are not only

available for much less than we used to pay, but thanks to the expedited approval process afforded by the 1984 Hatch-Waxman Act, generics account for about 80 percent of all drugs on the market.

Generics also comprise more than 40 percent of the total $300 billion U.S. revenue for major drug manufacturers, significantly more than the

BIO // Randy Schwimmer is senior managing director and head of origination and capital markets at Churchill Asset Management, a credit asset management firm affiliated with TIAA-CREF Asset Management LLC. He is also founder and publisher of The Lead Left, a weekly newsletter about deals and trends in the capital markets.

Content sponsored by

$70 billion from generic drug companies alone. All this has resulted in an estimated $1.5 trillion in health care savings for consumers over the past decade or so. That’s nothing to sneeze at.

But what’s good for buyers is ulcer-inducing for Big Pharma. Blockbuster patents are expiring at a dizzying clip. This year the so-called patent cliff of lost revenue is about $32 billion. And bringing a new drug to market isn’t cheap, averaging $2.6 billion; meanwhile, FDA approval can take up to 19 years. With more than 90 percent of drug candidates not making the cut, the cost of failure is punitive.

Still, pharma innovation remains impressive. Last year alone, 44 new drugs spanning 10 different therapies were greenlighted, the most since 1996. Treatments for infectious disease and cancer accounted for almost half of the applications.

The prognosis for generics isn’t all rosy. Mega-mergers have shrunk the number of manufacturers. With fewer competitors, any inventory shortages push up costs. And the FDA is cracking down on quality control at the facility level, which also raises production expenses.

Continued on next page

MIDPOINTS RANDY SCHWIMMER // Founder and Publisher, The Lead Left GENERICS CAN DEVELOP PRODUCTS FOR WIDER APPLICATIONS AND EXPAND INTO EMERGING MARKETS WHERE LOW-COST OPTIONS ARE FAVORED.

Meanwhile, the line is blurring between generic producers seeing tremendous upside from formerly ignored compounds and drug innovators loath to part with strong performers, despite lower profit margins.

Certainly the lofty purchase price multiples and hefty R&D budgets associated with Lipitor-like stars are daunting. But so is the task of wringing growth out of a portfolio of mature products. “You’re buying a sparkler that’s halfway burned,” one analyst told me.

Rather than broad-category blockbusters with wild revenue swings, innovators are aiming at esoteric disease therapies where only prescription drugs are available. One such “niche-buster” is Naglazyme. Used to treat Maroteaux–Lamy syndrome (don’t ask), it’s only prescribed to 64 patients. But at $485,747 per patient each year, that’s a nice dosage of profitability for its producer, BioMarin Pharmaceutical.

Niche-busting is also injecting life into M&A activity. Pharmacyclics paid $6.6 million in 2006 for a group of drugs including Imbruvica (or PCI32765, for those scoring at home). After years of clinical trials, Imbruvica showed efficacy treating leukemia, evolving to become Pharmacyclics’ sole product. Last month AbbVie, formerly part of Abbott Laboratories, coughed up $21 billion for half of the company, implying a $42 billion value. Not bad for a treatment with 2014 sales of $548 million.

It’s clear that Big Pharma’s targeting of ever-smaller patient populations with esoteric conditions won’t bring the same sweep of public health benefits as cholesterol-lowering drugs. At the same time, industry consolidation will hasten layoffs and plant closings as public companies rein in costs.

Generics can develop products for wider applications and expand into emerging markets where low-cost options are favored. With market share on their side, generics may yet win the drug wars. //

Growth MIDDLE MARKET

// MAY/JUNE 2015

Cover and story photography by McNeese Stills + Motion

FEATURES

Incubating Drug Innovation Contract manufacturers like Cytovance Biologics play a little-known role in drug development, providing the facilities and know-how to support pharmaceutical companies. Oklahoma City-based Cytovance is becoming a major force in the field and expanding rapidly, backed mainly by investment firm Great Point Partners.

Read more.

“THE DAYS OF GOING OUT AND FINDING A PLANT IN THE RAINFOREST TO CURE THESE DISEASES ARE SCREECHING TO A HALT.” // DARREN HEAD, CEO, CYTOVANCE BIOLOGICS

Closing the Cybersecurity Gaps Industry experts offer tips for middle-market businesses and investors looking to protect themselves against the threat of cyberattack.

Read more.

TABLE OF CONTENTS

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

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

EDITOR-IN-CHIEF

IN EVERY ISSUE Executive Summary Executive Suite MidPoints

by Randy Schwimmer Face-to-Face

DEPARTMENTS THE ROUND • ACG Western Michigan Presents ‘Outstanding Growth Award’ • Report Details Bright Outlook for PE in the Empire State • ACG Charlotte Holds Middle-Market Policy Summit Read more.

Quick Takes The Ladder

A QUALIFIED OPINION

B-Side

Michael Dal Bello, Investment Partner, Pritzker Group Private Capital, Shares Insight on Investing in the Health Care Sector.

It’s the Small Things The Leadership

Read more.

ACG@WORK • ACG Atlanta Scores with Annual Event • Health Care M&A Trends Explored at ACG New York Conference

Deborah L. Cohen dcohen@acg.org

ASSOCIATE EDITOR Kathryn Mulligan kmulligan@acg.org

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

DIRECTOR, STRATEGIC DEVELOPMENT Maggie Endres mendres@acg.org

BUSINESS DEVELOPMENT Albert Pereira apereira@acg.org

MANAGER, MARKETING & COMMUNICATIONS Larry Guthrie lguthrie@acg.org Custom media services provided by Network Media Partners, Inc.

• Pharmaceutical Exec Featured at Arizona Breakfast 2014 Association TRENDS All-Media Silver Award, Monthly Trade Publication

• ACG Cup Wraps up in Cincinnati

2014 Folio Eddie Digital Winner, Standalone Digital Magazine

THE PORTFOLIO

2014 Apex Award, New Magazine, Journal & Tabloid

Read more.

The latest middle-market trends and thought leadership written exclusively by a team of expert ACG Global featured firms.

Read more.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2015 Middle Market Growth®, InterGrowth and the Association for Corporate Growth, Inc. All rights reserved.

THANK YOU E V E N T S P O N S O R S A N D A L L I A N C E PA R T N E R S

EVENT SPONSORS

A L L I A N C E PA R T N E R S Divestopedia The Financial Executive Networking Group National Center for the Middle Market

Privcap Women’s Alternative Investment Summit Women’s Private Equity Summit

F O R M O R E I N F O R M AT I O N O N S P O N S O R S H I P S , C O N TA C T M A G G I E E N D R E S AT M E N D R E S @ A C G . O R G / 3 1 2 - 9 5 7 - 4 2 5 7 © 2015 Association for Corporate Growth. All rights reserved.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

For more information about the strategic alliance between ACG and Insperity, visit insperity.com/ ACG.

WORKFORCE SOLUTIONS

New ACG Partnership Offers Customized HR Solution ACG in April entered into a partnership with human resources services management firm Insperity Inc. to offer the association’s members a custom solution to manage administration of payroll, 401K plans, health insurance and other complex employee benefits.

The solution, available to all ACG members, will be particularly beneficial to midsize private equity firms and their portfolio companies, which often struggle to oversee disparate HR functions and hold the line on costs.

The relationship was seeded several years ago when ACG Global chose Insperity, a leading provider of human resources and business performance solutions for America’s best businesses, to manage human resources for its association staff in Chicago. The new partnership establishes Insperity as ACG’s preferred provider in the human resources services industry.

Continued on next page

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

“Through this relationship, we will be able to offer thousands of ACG members a more streamlined and systematic way to manage their human resources needs, allowing their businesses to operate more efficiently and effectively,” said Jay E. Mincks, Insperity executive vice president of sales and marketing. “Our goals to help companies run better, grow faster and make more money align well with ACG initiatives.”

ACG members will have access to numerous Insperity products and services, including workforce optimization, workforce synchronization, payroll services, time and attendance, organizational planning, expense management and financial services. These offerings enable business owners and key decision-makers to spend less time focused on the administrative aspects of operating their companies and more time developing the business.

“The mission of ACG is to drive middle-market growth,” said ACG President and CEO Gary LaBranche, FASAE, CAE. “Insperity offers a vital tool to help accelerate that growth in our members’ businesses by providing the perfect turnkey human resources solution.

This allows these companies to focus on their industry expertise to innovate, grow jobs and, ultimately, benefit the economy as a whole.” //

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS Get involved! This summer, ACG chapters across the globe will host hundreds of local events. Check out what’s happening at your local chapter, register and join in on valuable educational and networking opportunities.

2015 ACG Minnesota BOLD Awards at the Metropolitan Ballroom in Minneapolis.

Left: Johan Gjenvick, co-chair of the BOLD committee, took a selfie onstage with representatives from Boomchickapop after presenting their BOLD Award.

Right: The Pinky Swear Foundation team posed for a photo with its BOLD Award.

ACG Atlanta Chapter View Calendar

ACG Boston Chapter View Calendar

ACG Charlotte Chapter View Calendar

ACG Chicago Chapter View Calendar

ACG Cincinnati Chapter View Calendar

ACG Dallas/Fort Worth Chapter View Calendar

ACG Detroit Chapter View Calendar

ACG Maryland Chapter View Calendar

ACG Minnesota Chapter View Calendar

ACG New Jersey Chapter View Calendar

ACG New York Chapter View Calendar

ACG San Francisco Chapter View Calendar

ACG Seattle Chapter View Calendar

ACG Tennessee Chapter View Calendar

Had a newsworthy chapter event?

Send a 150to 200-word summary and high-resolution photos to Associate Editor Kathryn Mulligan.

THE ROUND NEWS THAT MATTERS

ACG Western Michigan Presents ‘Outstanding Growth Award’ The Western Michigan chapter of ACG honored JR Automation Technologies LLC with its 2015 Outstanding Growth Award at the chapter’s annual award event on Tuesday, March 17, in Grand Rapids, Michigan.

The award is given to local middle-market companies that demonstrate outstanding growth in sales, profitability, employment and community involvement. JR Automation has seen tremendous growth in jobs and sales since 2009, helped by capital and strategic direction from Huizenga Group, a western Michigan firm that invests in a diverse portfolio of companies.

“The Outstanding Growth Award is an excellent way to showcase the middle market and its importance as a catalyst for job creation and as a vital pillar of the local west Michigan economy,” said ACG Western Michigan President Robert Stead, a partner with the law firm Barnes & Thornburg LLP. “In the tough economic times, the middle market and private capital continue to play a vital role in the economic success of this country moving forward.”

Continued on next page

THE ROUND NEWS THAT MATTERS ACG CUP WINNERS // Ananda Krishnan (left) and Marty Gurry took first place in the MBA division of the Western Michigan chapter’s ACG Cup.

The company’s workforce has grown to 500 from 161 in 2009; meanwhile, it has expanded facilities and manufacturing capacity, said Bryan Jones, JR Automation Technologies’ chief operating officer.

On the day of the award announcement, middle-market private equity firm Crestview Partners announced its acquisition of the company and its commitment to growing JR Automation through private capital investment.

ACG Western Michigan also announced the winners of its annual ACG Cup competition, which is divided into two divisions: MBA students, and undergraduates in their junior and senior years. ACG Western Michigan is the only ACG chapter to host an undergraduate division of the ACG Cup. The competition now relies on 60 judges, up from 15 in 2009, who evaluate more than 120 student competitors from local colleges and universities. Each year at least one student from the competition is hired in western Michigan.

The graduate division winners were Marty Gurry and Ananda Krishnan from Grand Valley State University. Joseph Stefanski, Brendan Fox and Tommy Wyza from Northwood University won the undergraduate division. Meanwhile, Ryan Guiles and Tyler Wilk of Davenport University triumphed in the competition’s undergraduate lightning round. //

THE ROUND NEWS THAT MATTERS

Report Details Bright Outlook for PE in the Empire State New York’s middle-market private equity industry is seeing robust activity, mirroring the wider U.S. market, according to a report from ACG New York and PitchBook released in April.

“New York Private Equity in Review 1Q 2015” looked at trends in deal flow, exits and fundraising in the state, drawing on data from PitchBook, a private equity research firm, to compare activity across quarters.

Last year was particularly strong for private equity investment in New York: 2014 saw $26 billion of capital invested, the most since 2007.

PE sellers, too, had a banner year, completing a decade-high 58 exits of New York-based midsize companies through secondary buyouts, IPOs and corporate acquisitions.

Conditions will likely remain favorable for private equity exits, the report found: Corporate buyers and IPOs continue to serve as attractive exit routes; meanwhile, many funds are approaching the end of their investment periods and looking to sell their portfolio companies.

Limited partners continue to invest in private equity, the report’s data show, suggesting that LPs still view the asset class as a source for solid returns. Fundraising by New Yorkbased firms reached $53 billion in 2014, roughly in line with the previous two years.

New cash on hand, along with capital overhang from past years, will likely spur capital deployment in 2015 and competitive dealmaking will continue. // —KMM

THE ROUND NEWS THAT MATTERS MAKING AN IMPACT // From left, panelists Brent Kulman, Gretchen Perkins, Scott Gluck and Gary LaBranche.

ACG Charlotte Holds Middle-Market Policy Summit Public policy efforts took center stage at the ACG Charlotte Middle-Market Policy Summit hosted on Feb. 19. The program detailed the Association for Corporate Growth’s engagement with policymakers and regulators to advocate for middle-market private capital investment.

Four panelists shared their experiences visiting Capitol Hill on behalf of ACG and the middle market: Gary LaBranche, FASAE, CAE, ACG Global’s president and CEO; Brent Kulman, director of business development at BB&T Capital Partners; Gretchen Perkins, partner at Huron Capital Partners; and ACG’s regulatory counsel, Scott Gluck of Venable LLP. The panelists encouraged involvement on policy matters and shared information about ACG’s Private Equity Regulatory Task Force, made up of private equity compliance and financial officers, and in-house legal counsel. PERT focuses on communicating with the Securities and Exchange Commission on behalf of middle-market PE funds.

As LaBranche explained during his opening remarks, ACG has existed for more than 60 years, yet has only recently engaged in public policy. The financial crisis and the regulatory requirements imposed through the Dodd-Frank Act led ACG to recognize the importance of educating members of Congress, their staff and regulators about the contribution of the middle-market sector.

Some 50 ACG members and guests attended the summit, which was sponsored by Ridgemont Equity Partners, a Charlotte-based middle-market private equity fund. //

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // THE ANATOMY OF A DEAL

205

81% 60 The majority of bioscience deals are add-on investments (81% in 2012) while add-ons comprise a much smaller share of the middle market as a whole—only 53% of total deals in 2012

Buyouts of bioscience companies are on the rise, reaching 205 in 2014 from a low of 60 deals in 2009.

119 DEALS

Health care services make up the bulk of deals in the sector with 119 transactions in 2014, compared with 40 medical devices and supplies deals and just 19 pharmaceuticals/ biotech transactions.

Private equity buyouts of venture capital-backed companies in the bioscience sector lag other types of exits, comprising only 8% of exits in 2014.

45

M&A EXITS The number of bioscience companies exited through M&A has grown steadily since 2004, which saw eight M&A exits compared with 45 in 2014.

The Mid-Atlantic is consistently the U.S. region with the most bioscience deals completed annually, counting 49 in 2014. The South and Southeast followed with 33 deals each.

All stats are from PitchBook.

Waud Capital Partners II is one of the leading PE funds investing in the health care sector. The fund has completed 24 investments in the field since it closed in 2005.

“In the bioscience industry, there’s a lot of intellectual property and medicine in trial stages that bigger businesses are going out and acquiring through add-ons, compared with industries that are a little more developed where you see fewer add-ons.”

—Daniel Cook, senior data analyst, PitchBook

Merrill DataSite

ÂŽ

The Premier Global Due Diligence Platform

The Premier Due Diligence Platform for M&A Transactions Merrill DataSiteÂŽ is the premier global due diligence platform, offering superior virtual data room and document management services for M&A and other financial transactions. We provide first class security on a fully searchable and indexed workspace that enables users to access information around the clock for fast, efficient project close.

Our dedicated team of multi-lingual project managers can open your VDR from anywhere in the world in a matter of hours and have it loaded with thousands of pages of data for review.

Our global platform, first class security and premier service will help you expertly close your M&A transaction.

info@datasite.com www.datasite.com

LEADERSHIP // Cytovance Founder Dr. William Canfield (left) with the firm’s CEO, Darren Head.

Incubating

Drug Innovation Cytovance Biologics plays a behind-the-scenes role in developing lifesaving drugs

Photos by McNeese Stills + Motion

BY SUSAN NADEAU

CYTOVANCE BIOLOGICS // Business: Early-stage drug development, an estimated $2.6 billion market Headquarters: Oklahoma City Annual revenue: About $50 million Employees: 164 and growing, including 25 Ph.D.s Outside investment: Great Point Partners, Monroe Capital Website: www.cytovance.com

C

ontract manufacturer Cytovance helps pharmaceutical and biotech companies bring important early-stage drugs to market.

When Dr. William Canfield founded Cytovance Biologics 12 years ago, he did so with the needs of small biotech companies in mind; Canfield knew firsthand how scientists often struggle to bring good ideas to market due to a lack of money for high-tech labs and manufacturing space.

While Cytovance has expanded significantly since then, its focus on serving these innovative companies has not wavered. “(Cytovance) has been based on what the customer needs and how we can take advantage of that,” Darren Head, the firm’s CEO of seven years, says of his company’s stellar growth and expansion. “Being diversified has been key to this growth ... we are very flexible and reliable.”

“THE DAYS OF GOING OUT AND FINDING A PLANT IN THE RAINFOREST TO CURE THESE DISEASES ARE SCREECHING TO A HALT.” Darren Head CEO, Cytovance Biologics

These days, Cytovance—which assists drug companies with “soup to nuts” development, from helping to identify target molecules and turning those into drugs to providing samples for clinical trials—has clients of all sizes. But its mainstay business is still small- and medium-sized biotech firms.

Oklahoma City-based Cytovance is known in the industry as a contract manufacturing organization, or CMO. According to Head, Canfield identified the opportunity to open a CMO catering to scientists’ needs while working on a therapy to treat Pompe disease, after he was approached by a father of two children suffering from the then-fatal neuromuscular disorder. His story is the premise behind the 2010 Hollywood film “Extraordinary Measures” starring Harrison Ford. Canfield had a great idea, but lacked the resources to bring it through FDA trials and ultimately, to commercialize it.

IN THE LAB // Cytovance offers biotech firms lab space and in-house expertise.

Spoiler alert (but a good one) —“They saved the kids’ lives,” Head says.

“That is the basis of why we are here.”

Cytovance’s mission is to partner with its clients by providing what they need for “converting today’s novel protein discoveries into future lifesaving therapies and diagnostics,” he says.

It’s sometimes hard for a layperson to understand what goes into accomplishing that goal. In basic terms, Cytovance teams up with biotechnology firms to manipulate living cells and produce proteins and antibodies that (hopefully) become therapies for cancer, arthritis and any number of other afflictions, or are essential for vaccines and other uses.

What is clear is that aiding the development of these drugs represents a $2.6 billion market, according to 2010 figures—a competitive field but one also wrapping up a phase of consolidation. Cytovance racked up revenue of $51 million last year, just a fraction of the overall market but a share that is growing. The company’s annual growth rate for the past three years has averaged 48 percent, significantly higher than the industry average of 20 percent, according to Great Point Partners, Cytovance’s primary investor.

RAPID GROWTH // Cytovance COO Donald Wuchterl (left) says investor involvement has boosted growth.

Cytovance can’t talk about specific therapies in its labs because of strict confidentiality agreements. And while the variety is vast, ranging from treatments for autoimmune disorders to arthritis, and involves some interesting new vaccine platforms, the majority are targeted at cancer.

“The days of going out and finding a plant in the rainforest to cure these diseases are screeching to a halt,” Head says. “Now it’s biologics, and the CMO market is really driving this.”

ENTER GREAT POINT PARTNERS The investors at Great Point Partners, a private and public equity fund focused exclusively on health care, couldn’t agree more. Great Point took notice of the company’s management team and its alignment with the needs of pharmaceutical and biotech companies, leading to an investment of $10.2 million in 2011.

“We wanted to invest in a company that was going to benefit from the increased number of biologic drugs in the pipeline,” says Jeffrey Jay, managing director of Great Point. “Not the drugs themselves, but the companies that provide supplies, infrastructure and services.”

Betting on drugs alone is very risky, both Jay and Head point out.

Less than 10 percent or so of all biologics in the initial phase of clinical testing get the green light from the U.S. Food and Drug Administration for commercialization, but many are navigated through the discovery and early trial phases.

Cytovance has helped clients through all three phases of clinical trials needed for FDA approval, and executives expect the first FDA sanction of a drug developed in their facilities later this year.

“In 2008, for example, there were about 100 (drugs) in Phase III, and only one was approved,” Head says. “But still, everybody had to go through Phase I.” These companies, as Canfield found out during his fight to find a treatment for Pompe disease, cannot afford or don’t want to risk the money needed to set up their own facilities. Even the simplest manufacturing plant costs about $50 million to develop, Jay says—lost money if the drug does not reach market.

That’s where Cytovance comes in. It runs high-tech labs that help transform living mammalian and bacterial cells into pure proteins or antibodies. Its “clean rooms” offer hyper-controlled levels of air contaminators; they require special equipment and suits to maintain stable environments. The company also has bioreactors and fermenters where cells are grown and harvested, as well as equipment and facilities to complete the purification process.

In some cases, Cytovance simply provides those capabilities. But most often, clients take advantage of its in-house product development team to develop the therapy.

“They come to us with the DNA sequence, and we actually make the drug,” Head says.

Of 164 employees, 25 have Ph.D.s—a ratio Head says is the highest in the field.

And while some CMOs charge royalties, Cytovance does not; the CEO says its choice to charge only for services is a main reason the company is taking market share.

CLEAN ROOMS // Special equipment and suits ensure a sterile environment.

FIVE-FOLD INCREASE

“WE WANTED TO INVEST IN A COMPANY THAT WAS GOING TO BENEFIT FROM THE INCREASED NUMBER OF BIOLOGIC DRUGS IN THE PIPELINE.” Jeffrey Jay Managing Director, Great Point Partners

Cytovance gets paid by its clients even if a drug does not turn out to be effective, but investor involvement is allowing for rapid growth, according to Donald Wuchterl, Cytovance’s chief operating officer.

In both the microbial and mammalian sectors, the company is set to increase capacity five-fold, in addition to earlier expansion.

For proteins and antibodies derived using cells from mammals (Cytovance uses cells extracted from the ovaries of a Chinese breed of hamster), the company is developing a 5,000-liter bioreactor that will be ready in 2016. That’s on top of doubling its manufacturing capability to 1,000 liters, a project completed in 2013.

In the case of therapies derived from microbial cells— Cytovance usually starts with E. coli—the company is increasing capacity from 200 liters to 1,000 liters. In fact, it is about to open a new 30,000-square-foot facility, which will include the new fermenter, as well as operations to fill and finish vials and store them in high-tech warehouses.

Flexibility remains the dominant theme. The company recently opened “flex suite manufacturing” facilities— enabling customers requiring clean room capabilities to share the same space with other development platforms, a feature Wuchterl and Head say sets the company apart.

Much of the capacity expansion will meet the needs of existing clients as they move into more advanced clinical trials, requiring many more patients and, consequently, many more vials of the test drugs.

“We are just starting to realize some of the benefits of the influx of capital,” Wuchterl adds. “We have gone from the typical company getting its wheels going to one now with an incredible amount of momentum.”

According to Kalorama Information, a research firm, the biopharmaceutical and vaccine production market was estimated to reach $41 billion last year and continue to grow at double-digit rates for the next five years. Even more important, the CMO industry, which supports the development of biopharmaceuticals, is nearing full use. Capacity utilization for integrated biopharmaceutical manufacturers and large CMOs was estimated last year at 81 percent for microbial fermentation and 71 percent for mammalian cell culture, according to Kalorama.

IT’S ABOUT THE PEOPLE Accelerated expansion has prompted operational changes at Cytovance.

Since last November, Wuchterl has led a wider operations group that includes all manufacturing, R&D, manufacturing science and technology, facilities and engineering, program management, and materials management. In 2008, when Head took over as CEO, head count stood at 38. It is expected to top 200 by year-end.

“We are a small company and need to be lean,” Wuchterl says, adding that the new structure removes silos that had unintentionally formed.

“We need people and functions that can reach across other functions.”

The Cytovance team stresses that its people set the company apart. The company’s central U.S. location, far away from biotech hubs on the coasts, was initially considered to present a hiring hurdle but has proved to be the opposite. Top talent, once settled in the low-cost region, doesn’t tend to be lured away by the competition.

“We have an amazing team of engineers and scientists, and a very low rate of attrition,” says Jesse McCool, vice president of research and development services. “There is a lot of institutional knowledge here that we get to keep for a long time.”

NO EARLY EXIT Great Point stays close to the Cytovance management team, but its partners don’t micromanage, Head and others say. Investors hold weekly calls with management; Great Point’s Bernhard Hampl, who has led a successful career in Big Pharma, co-chairs the board, along with Canfield.

Great Point entered the investment with a five-to-eightyear plan, and even with the robust growth posted since the 2011 capital infusion, the firm is not planning on exiting early, Jay says.

“We want to see (Cytovance) become a major force in this field,” he says. “It’s a $50 million business now, growing at roughly 50 percent a year; you can imagine how much value is being created.” // Susan Nadeau is a business writer who splits her time between Hartford, Wisconsin, and Thessaloniki, Greece.

“WE HAVE AN AMAZING TEAM OF ENGINEERS AND SCIENTISTS, AND A VERY LOW RATE OF ATTRITION.” Jesse McCool Vice President, Research and Development Services, Cytovance Biologics

Cyber experts offer tips for middle-market businesses to stave off a breach.

Closing the

Cybersecurity

GAPS

BY SANDRA SWANSON

L

ast March, SEC Commissioner Luis A. Aguilar noted “mounting evidence that the constant threat of cyberattack is real, lasting, and cannot be ignored.” During the past year, high-profile corporate breaches have reinforced that statement—and they represent just a fraction of affected businesses. “More managers have become more aware, through stories of people they know, as opposed to a newspaper story,” says Lindsey Simon, founder of Chicago-based Simon Compliance, a boutique securities law compliance firm.

The threat is reflected in a report from the SEC’s Office of Compliance Inspections and Examinations, which assessed the cyber vulnerabilities of financial services firms. Most respondents indicated they had experienced cyber-related incidents (88 percent of broker-dealers and 74 percent of advisers). Cybersecurity has also become a priority for the Obama administration. In February, it announced the creation of the Cyber Threat Intelligence Integration Center to coordinate the efforts of federal agencies that monitor cyberthreats.

“It’s not a ‘sky-is-falling’ type of situation, but it’s certainly something that should be high-priority for firms,” says Simon. To that end, here are several tactics to help batten down the hatches.

1. Create Mandatory, Annual Employee Training (and Beware Phishing) “When it comes to cybersecurity, staff typically ends up being the weakest point,” says Bob Guilbert, managing director at Eze Castle Integration Inc., which provides IT solutions for the investment industry. To prevent employees from becoming unwitting gateways for attacks, educate them about the signs of malicious activity and techniques used by hackers. At Guilbert’s company, employees receive training online, with quizzes to confirm comprehension. It’s mandatory and takes place every year—an approach Guilbert recommends for all companies.

Phishing attacks represent the biggest problem for middle-market private equity firms, says Simon. She knows firms that changed account wiring instructions based on email requests from a limited partner or an operating partner—and then discovered that the requests actually came from hackers.

“Anytime anybody affiliated with your firm requests a change of bank wiring information, you need to follow up with a phone call,” she says.

David Dalva, vice president of security science for digital risk management firm Stroz Friedberg, agrees that phishing poses the biggest threat for middle-market private equity firms. When employees click on phishing links, it can result in malware installations that steal the firm’s banking credentials. “I’ve seen phishing attacks lead to the illicit transfer of tens of thousands of dollars, minimum,” he says.

2. Hire Someone to Hack Your Firm To boost phishing awareness, private equity firms can try to trick employees into opening “bad” emails. Dalva’s company has provided this service for several private equity firms. In one phishing campaign for a middle-market private equity firm, the domain closely resembled the firm’s, so recipients who weren’t paying attention would think it was an internal email. The email instructed recipients to click a link. “Within 20 seconds of sending it out, we got a hit,” says Dalva. “These campaigns are so important to educate people and show them what can happen. And there’s a little bit of an embarrassment factor, so it’s very good at raising awareness.”

3. Remove Administrative Rights Removing administrative rights from employees’ computers will help protect against malware that tries to embed itself in the operating system.

“There is definitely a strong trend to remove these rights, and most of the firms I speak with have either done this, or are planning to,” says Dalva. One of his clients noticed a dramatic decrease in infections from botnets—a form of malware—immediately after removing administrative rights from employee computers.

4. Keep Patching up to Date For diligence with software updates to fix bugs and security holes, Dalva rates companies overall as “so-so.” That’s a problem, because it represents one of the most important processes firms can implement to reduce risk, he says. Don’t limit your focus to updating Microsoft Windows or other operation systems, says Dalva—it can be even more important to update all third-party software.

PATCHING // To plug security holes, firms should update all third-party software.

“WHEN IT COMES TO CYBERSECURITY, STAFF TYPICALLY ENDS UP BEING THE WEAKEST POINT.” Bob Guilbert Managing Director, Eze Castle Integration Inc.

5. Create an Incident Response Team When a breach occurs, firms need to act quickly and not scramble to establish next steps or assign roles. That requires an incident response team to ensure the SEC’s cybersecurity recommendations are addressed, says Simon.

The team must develop an incident response plan that describes what actions to take (and by whom, and when) in the event of a cyberattack. Be sure to include a senior level partner on the team, she says, adding, “It lends credibility once you get buy-in from the top.”

6. Look for Vendor Vulnerabilities PE firms should scrutinize their IT vendor selections with the same rigor they apply to investment decisions, says Guilbert. When vetting IT vendors, he recommends a list of questions Eze Castle compiled for investor due diligence.

Meanwhile, Simon suggests having IT vendors review the SEC’s cybersecurity guidelines. In April the SEC issued updated guidance for financial services firms.

Dalva has observed heightened third-party risk management—and not just for IT. All vendors have the potential to create cyber vulnerabilities, he says. The data breach at big box retailer Target is a noteworthy example: It affected more than 110 million consumers and reportedly began with a phishing campaign that hit Target’s HVAC vendor.

Ensure that vendors have appropriate governance and security programs to reduce risk, says Dalva. That includes confirming the employees working on your account are the only ones with access to it.

NEW GUIDANCE // The SEC in April released a cybersecurity guidance update for registered investment companies and advisers.

7. Encourage Better Cybersecurity Within Portfolio Companies Last year, Stroz Friedberg developed a methodology for the private equity firm KKR to assess cybersecurity risk for dozens of its portfolio companies.

That included ranking each company’s overall risk as low, medium or high.

Dalva led that team and says he’s working on a similar project for another large private equity firm. He hasn’t seen middle-market private equity firms express the same concerns over security at portfolio companies—yet.

“I think we’re still in the early adoption phase of portfolio risk management,” he says, noting a growing awareness of cybersecurity’s financial implications. He recalls an executive at a large PE firm who expressed relief about the timing of a portfolio company sale—three weeks later, a data breach became public and the stock price was cut in half. Says Dalva: “I don’t know if there’s a better example of how cyberrisk contributes to financial risk.” // Sandra Swanson is a freelance writer based in the Chicago area.

CORPORATE BREACHES // HAVE YOU BEEN HACKED? A number of high-profile breaches were reported in 2014, and corporations scrambled to give their best estimates of how many customers were affected.

300,000,000 –

250,000,000 – 233,000,000

CUSTOMERS AFFECTED

200,000,000 –

150,000,000 –

100,000,000 – 76,000,000 70,000,000 56,000,000

50,000,000 –

5,000,000

2,600,000

350,000

MICHAELS

NEIMAN MARCUS

0– EBAY

Source: The Heritage Foundation

JP MORGAN CHASE

TARGET

HOME DEPOT

GOOGLE

twitter.com/grantthorntonus linkd.in/grantthorntonus youtube.com/grantthorntonus

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.

QUICK TAKES RENÉ KUIJTEN // General Partner and Co-Owner, Life Sciences Partners BV

Europe’s LSP Enhances New Health Technology

L

ife Sciences Partners (LSP) is one of Europe’s largest and most experienced health care investment firms. Among its most notable deals was the sale of Sapiens Steering Brain Stimulation—whose technology can help patients with

Parkinson’s disease and other movement disorders reduce symptoms such as rigidity and tremors—to medical device maker Medtronic last August. MMG asked LSP General Partner René Kuijten, M.D., Ph.D., MBA, about the firm and the climate for health care deals in Europe.

BIO // René Kuijten M.D., Ph.D., MBA, joined LSP in 2001. His primary responsibilities include investment in unlisted securities and the general management of the firm. Prior to joining LSP, Kuijten was a senior consultant at McKinsey & Company in Amsterdam, Brussels and Zurich, where he led McKinsey’s European health care practice.

Q

Can you provide some context on LSP? René Kuijten: With about $1 billion under management, we’ve

been active in the space for more than 25 years. We invest private equity in drugs and med-tech diagnostics. That’s our main activity. But we also have a fund in agro/food life sciences, one focused on cost reduction in health care and a fund focused on public small- and mid-cap biotech.

This differentiation helps us enlarge our footprint and really understand the entire health care space from very early to very late. For example, our team that is active in the public space is much better at knowing what the conditions are under which you can best do an IPO and what is expected from public companies, so we can help our private companies better think through whether or not an IPO strategy is helpful.

Q

Is investing in public markets, in addition to private equity, a strategy widely used in Europe?

RK: Yes, I think the only fund that does that in the U.S. is OrbiMed. In health care cost reduction we engage in a joint effort with health insurance, so health insurance companies invest in our funds. That strategy really helps us understand what insurance groups are looking at, why reimbursement strategies are important and how you implement in a diagnostic setting, which is also helpful for the other kinds of private funds we have. These activities reinforce each other. We’ve had 19 exits in the past two years.

Continued on next page

QUICK TAKES RENÉ KUIJTEN // General Partner and Co-Owner, Life Sciences Partners BV

Q

Can you talk about the Sapiens deal?

RK: It was actually a spinout from (Dutch consumer electronics company) Philips.

Therefore the scientific and technology background of the company was very strong. About a third of our deals are spinouts from larger groups that change strategy. The advantages are that the technology is really well-underpinned, it comes with a mature team, and normally the programs are rather well-advanced.

The specific technology in just a few words: The company develops a new device for deep brain stimulation, a neurosurgical procedure used for patients with Parkinson’s disease, and other movement and affective disorders. For this procedure a brain pacemaker, which sends electrical impulses to specific brain regions, is implanted in the brain. The effects on patients’ motor symptoms can be very significant—without stimulation certain patients are visibly shaking and have problems speaking, but the moment the stimulation is activated, the symptoms can disappear completely. Existing systems for the stimulation do not have the possibility to fine-tune and “steer” the electrical impulses after implantation; the Sapiens device is far more sophisticated and has the potential to steer the stimulation to get the most optimal therapeutic effect and reduce side effects. From outside the body you can actually regulate the electrodes with a remote control.

Q

How did LSP improve Sapiens?

RK: We always tranche our investments in a couple of rounds. So we say we only

take the next step once milestones are met; it’s kind of a gateway approach, based first on a very detailed strategic plan. Then we recruited a new CEO, one who in the end is much more capable of doing deals. The third thing we did was facilitate a new financing round just before the sale to increase the available financing for the company and to ensure that we had enough money to exit and negotiate. It’s much better to sell the company before it goes on the market and has its whole marketing strategy down.

Q

How does the European market differ from that of the United States?

RK: We see in Europe that the science is at least as good as in the U.S. and in certain

centers perhaps even a little better. But there’s a big lack of capital, so there are a lot fewer experienced private equity groups around to do deals. We see about 800 deals per year and we do only three or four, so we can be extremely selective, and we can negotiate very well. The prices at which we invest are lower and thereby our deals and our multiples are actually a little bit higher. In terms of exits, it’s very similar because drug and med-tech markets are global. So larger European or U.S. strategic buyers will acquire smaller companies across the globe.

That’s also why it’s helpful to be on both sides of the ocean—American companies would typically like to get approval in Europe first because it’s a little bit easier; then they can at least start selling. They need larger trials to get approved in the U.S. They can arbitrage a little bit. //

A QUALIFIED OPINION MICHAEL DAL BELLO // Investment Partner, Pritzker Group Private Capital

M

ichael Dal Bello is an investment partner in the Los Angeles office of Pritzker Group Private Capital and president of the Healthcare Private Equity Association. Pritzker Group, led by Tony and J.B. Pritzker, invests its permanent, proprietary capital primarily in family- and entrepreneur-owned middle-market businesses in the health care, manufactured products and services sectors.

1

2

3

4

5

SELECT ABOVE TO SEE Q&A

HEALTH CARE IS A LARGE AND GROWING SECTOR OF THE ECONOMY. HOW ACTIVE OF A SPACE HAS IT BEEN FOR PRIVATE EQUITY?

H

ealth care represents a $2.9 trillion industry in the United States alone and has proven to be “defensive” or resilient during periods of global and national downturns.

As a result, health care continues to be a very active space for private equity investors.

One of the trends we’re seeing now is a relative scarcity of health care companies for prospective private equity investment, which has contributed to higher valuations.

This doesn’t necessarily signal a slowdown. In fact, there are more than 50 members in the Healthcare Private Equity Association with assets under management of more than $400 billion, and an estimated $16 billion was invested in more than 200 health care companies in 2013. It appears that 2014 may have been even more active.

Photo by Matthew Gilson

A QUALIFIED OPINION MICHAEL DAL BELLO // Investment Partner, Pritzker Group Private Capital

M

ichael Dal Bello is an investment partner in the Los Angeles office of Pritzker Group Private Capital and president of the Healthcare Private Equity Association. Pritzker Group, led by Tony and J.B. Pritzker, invests its permanent, proprietary capital primarily in family- and entrepreneur-owned middle-market businesses in the health care, manufactured products and services sectors.

1

2

3

4

5

SELECT ABOVE TO SEE Q&A

HOW WOULD YOU DESCRIBE THE CURRENT ENVIRONMENT FOR HEALTH CARE COMPANIES?

H

ealth care in the United States remains in transition, following implementation of the Affordable Care Act. Companies that can deliver cost savings and innovative solutions likely will thrive as consumers become more aware of the diversity of their choices. Many health care service companies focusing on innovation and savings are experiencing robust gains, which can benefit related medical device and pharmaceutical companies.

At the same time, we’re operating in an environment where fiscal pressures are often top of mind, and that can create pricing pressure in many areas of health care.

For example, the very large price decreases in certain durable medical equipment categories as a result of the competitive bidding program administered by the Centers for Medicare and Medicaid Services are a reflection of the overall fiscal pressures.

Photo by Matthew Gilson

A QUALIFIED OPINION MICHAEL DAL BELLO // Investment Partner, Pritzker Group Private Capital

M

ichael Dal Bello is an investment partner in the Los Angeles office of Pritzker Group Private Capital and president of the Healthcare Private Equity Association. Pritzker Group, led by Tony and J.B. Pritzker, invests its permanent, proprietary capital primarily in family- and entrepreneur-owned middle-market businesses in the health care, manufactured products and services sectors.

1

2

3

4

5

SELECT ABOVE TO SEE Q&A

WHAT IMPACT IS THE AFFORDABLE CARE ACT HAVING ON HEALTH CARE INVESTING?

A

s is often the case with new legislation, certain areas of health care will fare better than others.

The primary purpose of the ACA is to expand health care coverage to millions of uninsured Americans, which will increase demand for health care services and products— though not equally among all areas of health care. Though there’s been an increase in overall volume, certain health care subsectors have experienced Medicare reimbursement cuts to help cover the cost of the increased coverage and access.

Additionally, and perhaps even more importantly, the introduction of health care exchanges, whether public or private, offers consumers more choice in health care coverage. In the long term, the ACA is another step toward consumers taking a larger, more active role in making decisions about their health care spending.

Photo by Matthew Gilson

A QUALIFIED OPINION MICHAEL DAL BELLO // Investment Partner, Pritzker Group Private Capital

M

ichael Dal Bello is an investment partner in the Los Angeles office of Pritzker Group Private Capital and president of the Healthcare Private Equity Association. Pritzker Group, led by Tony and J.B. Pritzker, invests its permanent, proprietary capital primarily in family- and entrepreneur-owned middle-market businesses in the health care, manufactured products and services sectors.

1

2

3

4

5

SELECT ABOVE TO SEE Q&A

WHICH SECTORS WITHIN HEALTH CARE ARE ATTRACTIVE AREAS TO INVEST IN?

A

t Pritzker Group, we’re looking to invest in marketleading family- or entrepreneur-owned companies with outstanding management teams. Because our permanent capital gives us the flexibility to build our companies over a much longer period than many private equity funds, we look for companies that we can grow by investing additional capital and making acquisitions over an extended period of time. We’re attracted to companies that can lower costs by applying technology, know-how and capital.

Clinical Innovations, a medical device company we own, is a great example of the type of investment we seek.

Clinical Innovations has the No. 1 global market share in the labor and delivery market, and as a result of its focus, we are able to address consumers’ needs and bring innovation to market more quickly. In addition, Clinical Innovations is a great model for smaller companies and inventors looking for partners; that offers Pritzker Group an opportunity to invest more capital as Clinical Innovations grows.

Photo by Matthew Gilson

A QUALIFIED OPINION MICHAEL DAL BELLO // Investment Partner, Pritzker Group Private Capital

M

ichael Dal Bello is an investment partner in the Los Angeles office of Pritzker Group Private Capital and president of the Healthcare Private Equity Association. Pritzker Group, led by Tony and J.B. Pritzker, invests its permanent, proprietary capital primarily in family- and entrepreneur-owned middle-market businesses in the health care, manufactured products and services sectors.

1

2

3

4

5

SELECT ABOVE TO SEE Q&A

WHAT ARE SOME OF THE RED FLAGS WHEN YOU’RE EVALUATING A POTENTIAL HEALTH CARE INVESTMENT?

I

n addition to the typical due diligence associated with any prospective investment, health care opportunities require more examination in some key areas. One of the first is regulation, and specifically, understanding which governmental agencies (both federal and state) have jurisdiction over the target company, to determine the likelihood that any issues could arise. For example, could potential conflicts develop among different regulatory requirements in the effort to balance speed and safety?

A second and related area is reimbursement through the Medicaid and Medicare programs. For instance, if there’s evidence of rapid growth and expansion of suppliers/providers for a number of years, investors could raise questions about the stability of the pricing model.

Photo by Matthew Gilson

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

CINCINNATI ARIZONA

NEW YORK ATLANTA

TAP CITIES TO NAVIGATE TO ARTICLE

ACG ATLANTA

Atlanta Scores with Annual Event Sports and dealmaking play well together, as ACG Atlanta proved during its football-themed 2015 Atlanta ACG Capital Connection®.

Panel discussions addressed industry topics cloaked in athletic metaphors—“Playing Offense in the Dealmaking Game”—throughout the day, and former NFL star and famous father Archie Manning gave the luncheon keynote address. The conference opened with a reception at the College Football Hall of Fame.

The event, held Feb. 4-5 at the Georgia World Congress Center, attracted a record-breaking 1,250 attendees and over 200 private equity, mezzanine and investment bank exhibitors.

“We were delighted with the turnout,” said Bob Pearlman, managing partner, assurance services with BDO USA, whose firm sponsored the Archie Manning keynote lunch. “The Atlanta ACG Capital Connection is a must-attend event for anyone in the M&A industry looking to make important connections in the Southeast.”

In conjunction with the conference, the chapter hosted its quarterly private roundtable discussion, which drew more than 40 corporate development executives from companies of all sizes, including Equifax, Coca-Cola and Turner Broadcasting. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE HISTORIC VENUE // Attendees convened at the Metropolitan Club in Midtown.

ACG NEW YORK

Health Care M&A Trends Explored at ACG New York Conference A lively panel discussion and a health care-focused ACG Capital Connection® marked another success for ACG New York at its 7th Annual Healthcare Conference.

The discussion addressing M&A trends in the health care industry kicked off the event, which was held at New York’s historic Metropolitan Club in Midtown.

Current valuation multiples, a continued robust debt market and the outlook for M&A in certain health care market segments were among the topics discussed.

Four current or former health care investment bankers comprised the panel: Charlie Ditkoff, former head of global health care corporate and investment banking, Bank of America Merrill Lynch; Rob Fraiman, CEO, Cain Brothers; Riley Sweat, head of health care, Raymond James; and Michael Weber, managing director, health care, Lincoln International.

ACG Capital Connection, an event showcasing private equity investors, followed the panel discussion and featured about 25 national health care private equity firms.

More than 400 registrants—representing more than 240 firms—participated in the February conference, a 15 percent increase from last year’s event. Private equity and venture capital investors, family offices, investment bankers and health care corporate executives represented nearly half of attendees. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE INNOVATIVE SOLUTIONS // Insys CEO Michael Babich discussed his firm’s breakthrough treatments.

ACG ARIZONA

Pharmaceutical Executive Featured at Arizona Breakfast The leader of innovative pharmaceutical company Insys Therapeutics addressed attendees at an ACG Arizona breakfast event this spring, sharing details about his company’s products and business model.

Michael Babich, president and CEO of the Phoenix-area firm, spoke to an audience of more than 90, discussing Insys’ breakthrough pain treatment for cancer patients and new products under development.

Insys’ fentanyl sublingual spray—designed to be administered under a patient’s tongue with a five-minute onset to relieve pain—has become one of the most prescribed products in the cancer treatment market.

Building on the success of its existing product line, Insys is currently developing a new solution to address symptoms of epilepsy in patients. The product is undergoing clinical trials.

Following his presentation, Babich answered questions from the audience, comprised of attendees from over two dozen firms from across the state who convened at the Arizona Biltmore Hotel in Phoenix for the Feb. 10 event. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE WINNERS // Miami University’s team took home the Cincinnati ACG Cup.

ACG CINCINNATI

ACG Cup Wraps up in Cincinnati Before the NCAA March Madness basketball competition kicked off, another college contest raged this spring in Ohio during the Cincinnati ACG Cup Finale.

Miami University’s team of MBA students triumphed over rival teams from the University of Cincinnati and Xavier University on Feb. 19 during the final competition of simulated M&A negotiations before a live audience.

A panel of experienced M&A professionals played the role of board directors and owners of a fictitious privately held business to pose challenging questions to participants and judge the quality of their responses.

Now in its eighth year, the Cincinnati chapter’s ACG Cup is a multi-month case study competition that gives MBA students real-world experience in M&A. Participants evaluate deals and advise on transactions, while industry professionals act as mentors and judges, providing valuable feedback and insight to students.

Twenty-four other ACG chapters participate in ACG Cup in their local markets.

The Cincinnati ACG Cup Finale was held at the Queen City Club and drew an audience of 150 for the cross-town matchup and cocktail reception. ACG Cincinnati used the occasion to introduce its ACG Cup Distinguished Alumni Award, which it presented to Luke Barber, vice president of corporate development for Pro Mach, a producer of packaging machinery. //

CI NCI NNATI CLEVELAND

COLUMBUS

DETROI T I NDI ANA

PI TTSBURGH

WESTERNMI CHI GAN

Sept ember1s t&2nd|Ci nci nnat i ,OH TheACGGr e a tLa k esCa pi t a l Connect i on( GL CC)i st a k i ngpl a cet hi sSept embera tt hehomeoft heCi nci nna t i Reds , t heGr e a tAmer i ca nBa l l Pa r k .TheGL CC i sady na mi cnet wor k i ng,de a l s our ci nga ndeduca t i ona le v entt ha ta t t r a ct sav i r t ua lwho' swhoofmi ddl ema r k etM&A pr of es s i ona l sf r oma cr os st hecount r y .

I ti sacol l a bor a t i v eef f or tofs e v enACGCha pt er sf r omt heMi dwes t&Mi dAt l a nt i cr egi ons .

Ea chy e a r , t hi shi ghener gye v entbr i ngst oget hermor et ha n900M&Apr of es s i ona l sf ori ncr edi bl ede a l s our ci ngoppor t uni t i es , net wor k i nga nd i ns i ght si nt ot hebi gges tt r endsi ncor por a t egr owt h, f i na ncea nde x i t s .

Deal Sour ce

Capi t alConnect i on

THE PORTFOLIO INSIGHT FROM THE EXPERTS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

IN THIS ISSUE SOUND DECISIONS

MID-MARKET TRENDS

Virtual data rooms present an efficient and confidential solution for managing dealrelated documents in the life sciences sector.

Attitudes toward borrowing to finance growth vary by company size, with midsize firms reluctant to take on debt for expansion, new research shows.

Quality of Operations analysis adds value to traditional accounting due diligence and gives investors a more holistic view of financial metrics.

COMING SOON Check out the Portfolio section of the July/August issue for more on the latest middle-market trends, written exclusively by our team of expert ACG Global featured firms. To learn more about contributing to this section, please contact Albert Pereira, (416) 560-6455.

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

THE PORTFOLIO SOUND DECISIONS // Mike McSweeney, Senior Vice President, TriVista

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

An Essential Guide to Quality of Operations

P

rospective investors recognize the direct link between business operations and financial performance. EBITDA, cash and revenue are all attributed to underlying process flows and business operations, despite being financial, not operational, metrics.

Even so, middle-market investors have

Use of operational due diligence alongside quality of earnings reports can benefit investors.

The general consensus today is that the

historically relied on traditional account-

goal of QOE is to allow the user to draw

ing due diligence to understand earnings

conclusions about current income and pro-

and financial performance by solely using

jections for the future. Quality of earnings

quality of earnings—or QOE—reports. In

can largely be summarized as the extent to

the early 2000s, however, the investment

which earnings and expenses are:

industry started to put more emphasis on

•• Cash or non-cash

operations and value enhancement, rec-

•• Recurring or nonrecurring

ognizing that financial engineering alone

•• Based on precise measurement

could not deliver required returns.

Quality of Operations, the TriVista

or estimates subject to change Essentially, QOE helps quantify and

process also known as operational due dili-

qualify historical earnings, while providing

gence analysis, is now becoming an impor-

important insight into actual earnings

tant additional requirement prior to most

and identifying value-destroying activities.

transactions. Investors value QOO as much,

It does not show the true capabilities of

if not more, than its financial counterpart.

the organization or determine how to turn challenges into opportunities

Is Quality of Earnings Still Important?

There is no single definition of QOE, and no agreed-upon industry standard. QOE’s roots trace back to the 1970s and 80s, when professional investors needed to ascertain company valuations based on true earnings, not accounting anomalies. At that time, the industry lacked a universal objective measurement.

for improvement.

THE PORTFOLIO SOUND DECISIONS // Mike McSweeney, Senior Vice President, TriVista

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

Mike McSweeney

Incorporating the Quality of Operations Approach

nization’s capabilities and prospects for

Quality of Operations analysis allows the

want to make sure that your Quality of

user to judge the current state of opera-

Operations advisers have relevant industry-

tional performance and understand the

specific experience, but ensuring you take

sustainability, predictability and certainty

a process-driven approach to operational

of an investment’s future performance,

diligence is a key element.

including its impact on and correlation to

operational improvement. Obviously you

TriVista advisers recently employed

financial statements. The Quality of

QOO to support a $500 million private

Operations can generally be summarized

equity fund evaluating a $100 million

as the degree to which operations are:

transaction. Our approach allowed us to

•• Optimized for excellence

identify opportunities for $2.5 million in

•• Sustainable at current/planned

EBITDA expansion and $7.5 million of

capacity and margins •• Performing at/near/above

working capital improvement.

Team members in China and North

benchmarks within an industry

America simultaneously assessed opera-

(in terms of inventory, cycle time, etc.)

tional capabilities and weaknesses using

•• Efficiently deploying capital

procedures that included data room analy-

(working capital, human capital

sis, personal interviews, on-site observa-

and intellectual capital)

tions and fact checking to analyze key

•• Supported by reliable fixed assets or at risk of unplanned capital expenditures •• Producing/delivering high quality products that meet known customer expectations •• Led by a competent leadership team focused on continuous improvement The more detailed and disciplined the QOO approach is up front, the more successful the investor, since decision-making

areas of operations, including: •• Operational leadership and management skill sets •• Capital expenditure planning and future requirements •• Engineering and new product development •• Sales and operations planning and inventory management •• Sourcing and supply chain management

is executed against an investment thesis

•• Continuous improvement programs

grounded in a realistic view of an orga-

•• Capacity by site

THE PORTFOLIO SOUND DECISIONS // Mike McSweeney, Senior Vice President, TriVista

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

daily communication with investors, flag-

QOE and QOO: Better Ways to Assess Value

ging critical risks to the transaction. They

As this example illustrates, Quality of

produced a key findings report, which

Operations dovetails nicely with QOE.

synthesized post-close risks and prioritized

QOE provides perspective on the historical

improvements, determining that the

financials, while QOO provides a bird’s-

organization lacked an Enterprise Im-

eye view of which levers can be pulled to

provement Program. TriVista’s QOO due

drive positive change (i.e., increased cash

diligence process gave the investors confi-

flow and EBITDA). An investor using both

dence to proceed with the transaction.

methods obtains a holistic view of finan-

TriVista’s global teams maintained

Using QOO, TriVista’s cross-functional

cial metrics, while identifying key opera-

teams were able to quickly and efficiently

tional enhancement initiatives (e.g., lean,

understand the organization’s operations

supply chain, new product development) to

piece by piece, and presented the investors

improve those metrics. //

with information critical to the operation’s stability and growth.

The private equity fund and its target

Mike McSweeney is a senior vice president of TriVista, where he leads the firm’s Food,

acquisition were both so satisfied with

Beverage and Consumables practice and is

TriVista’s operational due diligence efforts

a member of its Global Executive Leadership

that they retained the firm to implement

Team. He is responsible for TriVista’s

the identified post-close improvement

worldwide sales, marketing and business

opportunities and have since hired TriVista

development activities.

to support multiple acquisitions.

THE PORTFOLIO SOUND DECISIONS // James “Rusty” Wiley, CEO, Merrill Corp.

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

Optimize Due Diligence with a VDR

M Merrill DataSite’s virtual data rooms are well-suited for the complexities of health care and pharma deals.

anagement of critical data and transactions linked to patient handling, mergers and acquisitions, procurement of medical equipment, drug patents and licenses represents some of the daily humdrum in the health care sector. The pharmaceutical and biotech industries are bogged down with complexities such as maintenance of confidential information and the intellectual property of companies looking for potential licensing partners for their products. These factors create the need for a highly effective and compliant document management system.

Intellectual property is the lifeblood

to determine who can view their docu-

of pharmaceutical companies. Very often

ments and to monitor which documents

there is a limited time gap between receiv-

have been accessed. Our fully featured

ing patent protection for a product and

VDR shares information with the outside

generating revenue for the same. Mer-

parties and exercises strict control and

rill DataSite provides virtual data room,

observation on the due diligence process.

or VDR, software solutions that serve as

This could be beneficial if litigation were

well-monitored and controlled platforms

to occur.

to store, share and disseminate necessary

The solution also includes unique

information to authorized parties. Estab-

features such as optical character recog-

lished in 2002, the Minnesota-based com-

nition to simplify searches in the data

pany has conducted more than a million

room, and it can create unlimited real-

electronic due diligence procedures on as-

time audits and reports in easy-to-read

set transactions worth trillions of dollars.

formats. Furthermore, Merrill DataSite

When it comes to dealing with sensitive

ensures scalability with the ability to

information with outside parties, myriad

conduct multiple confidential due diligence

solution providers give discounts or free

cycles, extending transaction time by

services in the marketplace. However,

hosting unlimited bidders.

these providers may not understand their

Merrill DataSite has experience with

clients’ strengths and weaknesses and may

some of the largest companies and the

provide an inadequate level of security. A

most complex deals. One of its key differ-

Merrill DataSite VDR allows companies

entiators is a unique blend of service in

THE PORTFOLIO SOUND DECISIONS // James “Rusty” Wiley, CEO, Merrill Corp.

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS addition to software solutions. For example,

James “Rusty” Wiley

There is an endless list of success stories

when a client opens a new project, a dedi-

that speak to Merrill DataSite’s functional-

cated project management team is assigned

ity and commitment to securing the due

to guide the client through the process of

diligence process. In one instance, Merrill

setting up its DataSite. The team assists

DataSite facilitated the due diligence pro-

users and companies regardless of their

cess for a leading company specializing in

size to save time and transaction costs by

retrometabolic drug design (a strategy for

streamlining the entire due diligence pro-

the design of safer drugs using either soft

cess. These teams are adept at scanning,

drug or targeted drug delivery approaches).

uploading and organizing scores of content

Merrill DataSite’s dedicated project team

24/7 while following industry standards

addressed the client’s time constraints,

on security. And because they have experi-

travel costs and partner confidentiality

ence in the life sciences industry, the teams

agreements. In one day, Merrill developed

can assess whether their client requires

an effective plan to scan, upload and trans-

a regulatory filing and will configure the

fer paper documents into the new VDR. //

necessary documents per Food and Drug Administration guidelines.

James “Rusty” Wiley is CEO of Merrill Corporation, a global provider of outsourced solutions for business communication and information management, including the Merrill DataSite secure virtual data rooms.

THE PORTFOLIO MID-MARKET TRENDS // Itzhak Ben-David, Associate Professor of Finance, The Ohio State University Fisher College of Business

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

Access to Capital: How Middle-Market Companies Secure Funds to Grow

M

iddle-market firms—with annual revenue of $10 million to $1 billion—form the backbone of the U.S. economy. Their plans for future growth have a clear impact on the country’s prosperity.

In a recent study, the National Center

Midsize firms are willing to borrow to fund expansion but prefer conservative levels of debt.

for the Middle Market and the Milken

Key findings from the study include: •• Cash is king. Most middle-market

Institute explored near-term expansion

firms plan to use cash on hand to fund

plans for middle-market businesses, how

expansion and new projects in the

the companies plan to fund growth, and

coming year. They are significantly

how their attitudes toward financing

more likely than small businesses to

compare to small businesses.

rely on cash, and upper middle-market

While middle-market firms are more

firms (with revenue of $100 million to

likely than small businesses to expect

$1 billion) are the biggest proponents

growth—nearly all middle-market

of paying as they go, with 70 percent

companies plan on expansion over the

planning to finance growth with

next 12 months—the majority of firms do

existing resources.

not anticipate taking on additional debt to achieve their goals. In fact, like small businesses, middle-market companies maintain a notably conservative attitude about debt. Rather than viewing debt as a tool for growth, most are reluctant to borrow unless it becomes necessary.

Middle-market firms are more likely than small businesses to see value in carrying

•• Only about two in 10 small and midsize businesses plan to take on debt to finance growth. However, core middle-market firms (with revenue of $50 million to $100 million) are the most likely to borrow; 30 percent indicate that they will use debt to grow.

•• Low debt levels are preferred. Middle-

some level of debt, but many prefer low

market firms have more tolerance for

debt levels.

debt than small businesses, but they still target low debt-to-asset ratios. About 60 percent of middle-market executives say

THE PORTFOLIO MID-MARKET TRENDS // Itzhak Ben-David, Associate Professor of Finance, The Ohio State University Fisher College of Business

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS that a 20 percent debt-to-asset ratio is

Itzhak Ben-David

•• Traditional bank loans are the most

right for their businesses. And some—

popular funding source for middle-

about 20 percent of core and upper

market companies. Bank loans are

middle-market firms and a quarter of

also the source of capital most likely to

lower middle-market firms—prefer no

be considered for future funding. About

debt at all.

three-quarters of middle-market firms

•• Bank debt is the most common type of existing debt for middle-market firms. However, about 40 percent of core

cite strong relationships with bankers as a driving factor in this preference.

•• Private equity is a distant second

middle-market firms also carry

to bank loans. About half of middle-

other private debt.

market firms are familiar with private

•• Middle-market companies borrow when they need to. Around half of middle-market firms strategically plan for borrowing needs, and they are more likely than small businesses to take a top-down approach to managing debt.

For middle-market companies, current debt levels are most often the result of past decisions to borrow when needed.

•• Borrowing costs could impact plans.

While the majority of small businesses and middle-market firms would not change expansion plans based on the cost of capital, core middle-market firms are most likely to be impacted by an interest rate swing. About six in 10 core middle-market firms say a rate change could cancel, slow or reduce investments. A two percentage-point increase is seen as the tipping point.

equity as a source of capital and are much more likely to consider it than small businesses. For core middlemarket firms, private equity is the second leading source of capital, but only 14 percent of core firms have used this option over the past three years.

About 15 percent of middle-market firms say they would consider private equity.

•• Whether borrowing from a bank or another source, middle-market firms say the interest rate has the largest impact on their decision. They also value ease of access, certainty of execution and speed of execution. // The National Center for the Middle Market is a collaboration between GE Capital and The Ohio State University Fisher College of Business. Visit middlemarketcenter.org to download the full report.

THE LADDER ACG MEMBERS ON THE MOVE

Gretchen Perkins

Gretchen Perkins, a member of

Timothy McFadden, a member

ACG Detroit, co-chair of ACG’s

of ACG St. Louis, joined the

Public Policy Committee and

law firm Polsinelli as

director at large for ACG Global’s

shareholder in the firm’s St.

board of directors, was named

Louis office, where he will

2014 Dealmaker of the Year by Mergers and Acquisitions to

Timothy McFadden

assist clients with corporate and transactional matters.

recognize her success generating business for private equity firm

Tom Affolter, a member of

Huron Capital Partners.

ACG Chicago, was promoted to partner by Victory Park

Daniel Valle, a member of

Capital, a Chicago-based

ACG Charlotte, was promoted

middle-market investment firm.

to senior associate by Accord

Daniel Valle

Tom Affolter

Affolter manages the firm’s SBIC

Financial Inc., a provider of

fund and sources, underwrites

asset-based financial services.

and executes debt and equity

Valle is responsible for Accord’s

investments.

regional business development David Enright has joined

in the Southeast.

Chicago-based First Midwest Alex Levental, a member of

Bank’s asset-based lending

ACG Boston, was promoted

team as senior vice president,

to managing director by

national head of business

Connecticut-based private Alex Levental

David Enright

development, from his previous

equity firm Ironwood Capital,

role as FVP of business

where he is responsible for deal

development at First Financial

origination, structuring and

Bank in Cleveland.

execution, industry research, Maggie Endres of ACG Global

and portfolio management.

was promoted to director, strategic development; she leads ACG’s partnership program to help the Maggie Endres

association’s partners achieve their marketing goals. Endres joined ACG in November 2012.

THE LADDER ACG MEMBERS ON THE MOVE

Brian Mulvaney

Brian Mulvaney, a member of

Independent Bankers Capital

ACG Orange County, was named

Funds, a Dallas-based private

market manager for the Orange

capital investment firm with

County area by Bank of America

members of ACG Dallas/Fort

Merrill Lynch, where he oversees

Worth, announced the launch

the regional commercial banking

of its third fund, an SBIC, with

team and coordinates business

approximately $100 million of

development initiatives. He also

investable capital, including

leads the firm’s beverage

both private commitments

finance group.

and Small Business Administration financing.

Michael Novoseller and Vipul

Michael Novoseller

Shah, members of ACG New

Norwest Equity Partners,

York, have joined Denver-based

a middle-market investment

asset manager Arrowpoint

firm with members of the

Partners, where they will focus

Minnesota and San Francisco

on leading and expanding the

ACG chapters, invested in

firm’s direct investment activities

Minneapolis-based Eyebobs, a

through its Arrowpoint Direct

brand of luxury reading glasses.

platform. Arrowpoint Direct

NEP’s financing will be used to

provides debt and equity capital

fuel growth initiatives.

solutions to small and midsize Vipul Shah

companies with $3 to $50

CV Credit Inc., a provider of

million of EBITDA.

flexible financing solutions, announced the appointment of

Alan Stewart, a member

two new business development

of ACG National Capital,

staff members: Maria Chiang

has joined Vistronix as chief

Alan Stewart

Maria Chiang

was named head of market

financial officer. He will provide

development for the West Coast

corporate-wide financial

region, and Tanya Fontenot

leadership for the firm, which

joined as vice president for the

devises intelligence and

Gulf region.

technology solutions for national security agencies.

Tanya Fontenot

To submit your promotions, job changes and other accomplishments, please send details and a high-resolution color photo to Associate Editor Kathryn Mulligan at kmulligan@acg.org.

16 – 17 NOVEMBER 2015 | MÖVENPICK HOTEL AMSTERDAM CITY CENTRE | AMSTERDAM

JOIN ACG THIS YEAR IN AMSTERDAM

S A V E T H E D AT E . S TAY U P D AT E D .

W W W. E U R O G R O W T H . O R G

#EUROGROWTH © 2015 Association for Corporate Growth. All Rights Reserved.

B-SIDE TONY RUBIN // Vice President, Americas, Surgical Science

LEARNING TO SPEAK ‘MEDICINE’...

“If it’s medicine or fertilizer or trucks, when you become infiltrated in a particular area and you understand and you learn, I think you quickly can speak intelligently about it.”

PEOPLE MAY NOT KNOW...

“I never use an ATM. I’ve used it once—when I was 15 or 16—but I’ve just always gone to the bank or used credit cards. I just don’t use ATMs, and running a technology organization, it does seem a little peculiar.”

TONY RUBIN // Building on nearly 15 years of medical sales, marketing and executive leadership experience, in 2008 Rubin joined Surgical Science, a developer of virtual reality medical training simulators and winner of ACG Minnesota’s 2015 BOLD Award.

STAYING UP TO DATE...

“I read four or five newspapers on a daily basis. I’m very much a communication junkie— I love current events and staying current on what’s happening in the world.”

NEW SKILLS...

“I want to learn how to play tennis. I’ve played hockey my whole life—last year I retired from being a youth hockey coach after 18 years—but tennis was never something I got a good knack for.”

“TEN YEARS AGO MOST PEOPLE HAD NO IDEA WHAT A SIMULATOR WAS IN MEDICINE.”

BUSINESS TRAVEL...

“My favorite country that I’ve visited thus far is Chile—I love how cosmopolitan it is, and it has a really great flavor of European and American cultural influences.”

—KMM

“WHEN I STARTED AT MEDTRONIC IN THE MARKETING AND COMMUNICATIONS AREA, IT WAS JUST THE BEGINNING OF WHAT CONTINUED TO BE A PATH IN MEDICAL.” JOINING A NASCENT INDUSTRY... “(Ten years ago) there had never really been simulators sold to hospitals. It was an opportunity for me to get a taste of business development and a chance to lay the groundwork for something that had never been done.”

Content sponsored by

IT’S THE SMALL THINGS HEALTH CARE AND PHARMA TRENDS // Just a Spoonful of Sugar

1

2

3

YOUR NEXT PET PROJECT

Despite veterinary care being the secondhighest expense for American pet owners, only 1% of U.S. pets are insured, compared with 30% in the United Kingdom and more than 50% in Sweden.

A CASE OF WHO DUNNIT

6

INVESTORS GET AN ‘A’ IN LIFE SCIENCE

TIGHT RACE FOR TOP DEAL-MAKER

Merz Pharma’s $600 million acquisition of Ulthera, whose signature device performs noninvasive skin lifting procedures, was named 2014 Deal of the Year by ACG Arizona.

PUTTING THE U.S. UNDER THE MICROSCOPE

The San Francisco Bay Area came out on top in a recent study of U.S. biopharma clusters, with $1.45 billion in VC funding.

4

5

In response to the World Health Organization’s call for worldwide use of “smart” syringes, about 70 manufacturers are beginning to make versions of this product.

In the fourth quarter of 2014, software investment was up 53% and biotechnology was up 85% quarter over quarter, while medical devices were up only 21% for the same period.

CHECK OUT HEALTH CARE—STAT! As the focus of the health sector moves beyond the Affordable Care Act and into consumer-centered, digitally enabled care, here are the top 10 health industry issues dominating the agenda in 2015.

—Larry Guthrie, manager, communications and marketing, ACG Global

THE LEADERSHIP ACG DIRECTORS ACG BOARD OF DIRECTORS //

CHAPTER REPRESENTATIVE DIRECTORS //

DIRECTORS AT LARGE //

Chairman Doug Tatum* Newport Board Group ACG Atlanta Term expires 8/31/2015

Brent Baxter Clayton Capital Partners ACG St. Louis Term expires 8/31/2017

Jason Brown Victory Park Capital ACG Los Angeles Term expires 8/31/2016

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

Jason Byrd The Charter Group ACG Western Michigan Term expires 8/31/2017

Robert Brighton Shutts & Bowen, LLP ACG South Florida Term expires 8/31/2017

Greg Cinnamon Kilpatrick Townsend & Stockton LLP ACG Atlanta Term expires 8/31/2015

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

Mike Ehlert Capital One Leverage Finance Corp.

ACG Dallas/Fort Worth Term expires 8/31/2015

Karen Grexa KeyBank Business Capital ACG New Jersey Term expires 8/31/2017

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

Jay Hansen O2 Investment Partners ACG Detroit Term expires 8/31/2017

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

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

Don Lipari McGladrey ACG New York Term expires 8/31/2017

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

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

Walter O’Haire Valuation Research Corp.

ACG San Francisco Term expires 8/31/2017

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

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

Karen Tuleta Morgenthaler ACG Cleveland Term expires 8/31/2017

Hans-Josef Vogel Beiten Burkhardt ACG Germany Term expires 8/31/2015

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

Vice Chairman Richard Jaffe* Duane Morris LLP ACG Philadelphia Term expires 8/31/2015 Chairman of Finance Stephen Prostor* Citi Private Bank ACG New York Term expires 8/31/2015 Secretary J.B. Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2015 Immediate Past Chairman Pamela Hendrickson* The Riverside Company ACG New York Term expires 8/31/2015 President & Chief Executive Officer Gary A. LaBranche, FASAE, CAE* ACG Global

ACG HONORARY DIRECTORS // Robert G. Coffey Alan B. Gelband *denotes member of Executive Committee

ACG NEAR YOU ACG CHAPTERS ACG 101 Corridor acg.org/101

ACG Detroit acg.org/detroit

ACG Orlando acg.org/orlando

ACG Arizona acg.org/arizona

ACG Edmonton acg.org/edmonton

ACG Philadelphia acg.org/philadelphia

ACG Atlanta acg.org/atlanta

ACG France acg.org/paris

ACG Pittsburgh acg.org/pittsburgh

ACG Austria acg.org/austria

ACG Germany acg.org/germany

ACG Portland acg.org/portland

ACG Barcelona acg.org/barcelona

ACG Holland acg.org/holland

ACG Raleigh Durham acg.org/raleighdurham

ACG Boston acgboston.org

ACG Houston acg.org/houston

ACG Richmond acg.org/richmond

ACG Brasil acg.org/brazil

ACG Indiana acg.org/indiana

ACG San Diego acg.org/sandiego

ACG British Columbia acg.org/bc

ACG Kansas City acg.org/kc

ACG San Francisco acg.org/sanfrancisco

ACG Calgary acg.org/calgary

ACG Kentucky acg.org/kentucky

ACG Seattle acg.org/seattle

ACG Central Texas acg.org/centraltexas

ACG Los Angeles acgla.org

ACG Silicon Valley acg.org/sv

ACG Charlotte acg.org/charlotte

ACG Louisiana acg.org/louisiana

ACG South Florida acg.org/southflorida

ACG Chicago acgchicago.com

ACG Maryland acg.org/maryland

ACG St. Louis acg.org/stlouis

ACG China acg.org/china

ACG Minnesota acg.org/minnesota

ACG Tampa Bay acg.org/tampabay

ACG Cincinnati acg.org/cincinnati

ACG National Capital acgcapital.org

ACG Tennessee acg.org/tennessee

ACG Cleveland acg.org/cleveland

ACG Nebraska acg.org/nebraska

ACG Toronto acg.org/toronto

ACG Columbus acg.org/columbus

ACG New Jersey acg.org/newjersey

ACG UK acg.org/uk

ACG Connecticut acg.org/connecticut

ACG New York acg.org/nyc

ACG Utah acg.org/utah

ACG Dallas/Fort Worth acg.org/dfw

ACG North Florida acg.org/northflorida

ACG Western Michigan acg.org/wmich

ACG Denver acg.org/denver

ACG Orange County acg.org/occ

ACG Wisconsin acg.org/wisconsin

P RESENT S

S E E T H E I M PA C T P R I VAT E C A P I TA L I S H AV I N G O N Y O U R S TAT E .

L E A R N M O R E AT T H E A L L - N E W

GrowthEconomy.org C O M I N G M AY 2 0 1 5