Middle Market Growth - September/October 2016

Growth MIDDLE MARKET

// SEPTEMBER/OCTOBER 2016

THE FUTURE OF

Mobile Gaming Skillz Ups the Competitive Ante

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Standing out from the pack.

In an industry where every approach looks the same, Watermill stands out from the pack. We uncover opportunities that others often overlook and implement creative strategies that help our companies thrive.

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EXECUTIVE SUMMARY JASON BROWN // Chairman, ACG Global and Partner, Victory Park Capital

Tune In to the Media Industry’s Tech-Savvy Deal Opportunities

I

’m particularly excited to kick off my term as chairman of ACG Global in an issue of Middle Market Growth that focuses on the entertainment and media sector. As a partner in Victory Park Capi-

tal’s Los Angeles office, I see on a daily basis the importance of the entertainment industry to everyday life.

In terms of deals, the nexus of entertainment, media and technology provides some particularly compelling opportunities for middlemarket investors, as our cover story about online gaming platform Skillz demonstrates. With the backing of private capital, Skillz is capitalizing on the unceasing popularity of online gaming, offering a means for gamers to compete in cash competitions for virtual currency. It’s a brave new world, to say the least.

Among other stories, we take a look at a topic that is sometimes not so entertaining for deal-makers—how cultural fit can help or hurt the deal process. Culture can affect everything from employee retention rates to company valuation.

ACG’s own cultural currency is progressively gaining strength, particularly among constituencies in Washington, D.C., where efforts to change important legislation are moving forward. In June, the bipartisan Investment Advisers Modernization Act, H.R. 5424, was introduced into the U.S. House of Representatives.

When passed, this law will update longstanding reporting requirements for midsize private equity firms and ensure that compliance requirements better reflect their business model. The introduction of this bill marks a significant milestone for ACG and follows substantial lobbying efforts on the part of ACG members, including the association’s Private Equity Regualtory Task Force. The bill was passed in June by the House Finance Services Committee on a strong bipartisan vote. ACG expects the full House to consider the bill this fall and is working to establish a companion bill in the Senate. There are sure to be more triumphs ahead for ACG as PERT works to maintain momentum under the new political administration.

Next month, many of you will be heading off to Barcelona for the fourth annual EuroGrowth conference at Hotel Arts Barcelona. This two-day networking and educational event has quickly become the premier summit for middle-market deal-makers who invest in global deals. The city of Barcelona offers everything from fabulous Spanish cuisine to world-renowned history and architecture. The event is not to be missed.

In the meantime, please enjoy this copy of MMG, which is also being distributed in print at a variety of ACG Capital Connection® events this fall. The editor and I are happy to receive any feedback you may have on topics or issues important to the middle market. //

MIDPOINTS JOHN GABBERT // Founder and CEO, PitchBook

Are You Entertained?

Entertainment M&A Hits $27.9 Billion in Total Value

F

ree time can be hard to come by these days, which is why people prize it so highly. Especially online, everyone is competing for attention and dollars. Resorts, gaming companies, luxury restau-

rants, film studios and others are all trying to snag consumers’ leisure time, which has become a valuable commodity. Our attention is also pretty difficult to command—especially nowadays, since we have so many options. Younger consumers want increasingly experiential en-

BIO //

tertainment offerings, whether it’s 21+ movie theaters that serve them

As founder and CEO of PitchBook Data Ltd., John Gabbert brings more than 15 years of experience building comprehensive databases that cater to the private equity and venture capital industry. Gabbert built the PitchBook Platform from the ground up and grew the company into the foremost data and technology provider for the global PE and VC markets.

in their seats or resorts that offer local delicacies. Consequently, it’s no surprise there is plenty of deal activity in the entertainment space, with corporations seeking to expand market share through consolidation or acquire new product lines. Through the end of May, this year has seen $27.9 billion in total entertainment M&A value across 252 closed transactions. That dollar sum is already 75 percent of 2014’s $37 billion total, the high of the past six and a half years. Although the pace of dealmaking has slowed slightly overall, with the 2014’s 642 transactions and 2015’s 622 unlikely to be matched this year, it remains clear that strategic buyers are still looking to entertainment deals as a means of growth. Even if overall deal flow in the sector slows in line with declining M&A activity

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across all industries in the wake of a few particularly active years, 2016 has already been quite robust.

One particular area of entertainment has already seen more M&A value this year than any other since 2010: entertainment software. At just under $14 billion across 47 transactions, the first five months of 2016 have already eclipsed 2015’s total deal value of $13.5 billion. Notable transactions include Microsoft’s purchase of Mojang (the company behind Minecraft) for $2.5 billion, Activision Blizzard’s acquisition of King Continued on next page

MIDPOINTS JOHN GABBERT // Founder and CEO, PitchBook

Digital Entertainment for $5.9 billion and the takeover of Riot Games by Tencent for $400 million. These deals are useful examples of two key trends in gaming right now: cheap, relatively simple games designed for mobile (think Angry Birds or Candy Crush) that also have a strong social component and massive, multiplayer games geared toward desktop PCs. King Digital Entertainment is behind Candy Crush, while Minecraft is one of the most popular video games in history. These two genres of gaming entertainment fill two key segments of leisure time: the hopefully brief morning and evening commutes, which are ripe for simple games on mobile devices; or time at home that allows for more challenging, involved online gaming that includes strategy and socializing with groups of friends. Those are just a couple of prime leisure times that companies are looking to target or dominate in the ongoing competition for our free time. Whatever your preference, every entertainment business is looking to match it, and many are turning to M&A to keep doing so. //

Strength, solutions and strategic growth for private equity Audit | Tax | Advisory | grantthornton.com

“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL), and/or refers to the brand under which the independent network of GTIL member firms provide services to their clients, as the context requires. GTIL and each of its member firms are not a worldwide partnership and are not liable for one another’s acts or omissions. In the United States, visit grantthornton.com for details. © 2016 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd

Growth MIDDLE MARKET

// SEPTEMBER/OCTOBER 2016

Cover and above photo by Craig Sherod

FEATURES

Skillz: The Future of Mobile Gaming For his latest startup, serial entrepreneur Andrew Paradise decided to build technology that gives mobile game players more opportunities to compete—and helps game developers earn more money. Backed by private capital, Skillz is tapping into burgeoning demand for competitive gaming.

Page 22

“(ANDREW PARADISE) SAW THAT PEOPLE COULD HAVE AN ESPORTS-TYPE COMPETITION, FOR REAL MONEY, WITH CASUAL MOBILE GAMES.” // MIKE VORHAUS, PRESIDENT, MAGID ADVISERS

Meeting Your Match: Culture In the M&A Process Besides the cash on the table and the nitty-gritty of contractual details, the cultural fit of the acquirer and the target can make or break a deal.

Page 32

TABLE OF CONTENTS

IN THIS ISSUE

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

Executive Summary

VICE PRESIDENT, COMMUNICATIONS & MARKETING

MidPoints by John Gabbert

Kristin Gomez kgomez@acg.org

Growth Economy Face-to-Face

EDITOR-IN-CHIEF

Quick Takes

Deborah L. Cohen dcohen@acg.org

The Ladder It’s the Small Things The Leadership

READ ONLINE Read additional content on the MMG website.

DEPARTMENTS POLICY POINTS • Middle-Market Washington Wrap-Up • ACG Wins Award for Growth Economy Read more.

THE ROUND • ACG Partner PitchBook Appoints COO

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

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

• Data Analytics is Altering M&A Marketplace Read more.

DIRECTOR, STRATEGIC DEVELOPMENT

A QUALIFIED OPINION

Maggie Endres mendres@acg.org

Andrew Vogel, Partner with ZMC (Zelnick Media Capital), Discusses Investment Opportunities in the Entertainment Sector

Custom media services provided by Network Media Partners, Inc.

Read more.

2015 Folio Ozzie Digital Winner, Standalone Digital Magazine 2014 Association TRENDS All-Media Silver Award, Monthly Trade Publication 2014 Folio Eddie Digital Winner, Standalone Digital Magazine 2014 Apex Award, New Magazine, Journal & Tabloid

ACG@WORK • ACG Holland Delivers First Growth Awards • ACG New York Hosts ‘Disruptive’ Media Event Read more.

THE PORTFOLIO 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 2016 Middle Market Growth®, InterGrowth® and the Association for Corporate Growth, Inc. All rights reserved.

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POLICY POINTS THE LATEST PUBLIC POLICY ISSUES IMPACTING THE MIDDLE MARKET

PUBLIC POLICY UPDATE POLICY POINT NEWS

1

2

Lawmakers Hand Midmarket M&A Busy Summer ACG Wins Award for GrowthEconomy.org

Lawmakers Hand Midmarket M&A Busy Summer As Presidential Contest Nears, the Middle Market Sees Flurry Of Legislative and Regulatory Activity

By Amber Landis, ACG Global It’s been a busy summer on the legislative and regulatory side for M&A. Coupled with news on Brexit, ACG members are in the thick of a heated presidential contest that is proving to impact Washington lawmakers and how they gear up for 2017.

Legislative The House Financial Services Committee has been extremely busy.

Committee Chairman Jeb Hensarling, R-Texas, has released a discussion draft of the Financial Choice Act to reform Dodd-Frank. Importantly, this draft is more than just another reform proposal; it is the culmination of several years of House Financial Services Committee activity.

Continued on next page

POLICY POINTS THE LATEST PUBLIC POLICY ISSUES IMPACTING THE MIDDLE MARKET Many provisions enjoy bipartisan support at a time when Britain’s decision to exit the European Union focuses attention on global financial regulatory reform. ACG anticipates the bill is likely to be marked up before the election, and it could be a road map for post-election reform. In addition, some of its provisions could be enacted in year-end omnibus legislation.

Another reform bill, the Investment Advisers Modernization Act, is being considered by the House Financial Services Committee. The bipartisan legislation, led by Reps. Robert Hurt, R-Va., and Juan Vargas, D-Calif., would tailor requirements of the Investment Advisers Act of 1940 to reflect the private equity investor model, while also maintaining SEC oversight and investor protections. In June, the committee approved H.R. 5424 by a vote of 47 to 12, and the bill is expected to move for consideration on the House floor in the early Fall.

The legislative action follows efforts by ACG and its Private Equity Regulatory Task Force, known as PERT, to support the bill during its annual fly-in. In mid-May, ACG member Joshua Cherry-Seto, CFO of Blue Wolf Capital, testified before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises in support of the bill.

Also in June, the long-awaited blueprint on comprehensive tax reform was released by the House Republican Task Force on Tax Reform, led by House Speaker Paul Ryan, R-Wisc., and Ways and Means Committee Chairman Kevin Brady, R-Texas. It proposes a 20 percent statutory corporate tax rate, a move toward a cash-flow consumption tax through immediate expensing and a limit on business interest deductions, a limit that ACG has opposed.

ACG contends limiting interest deductibility would hinder the ability of small and midsize businesses to finance new investment, expansion and innovation, as well as their ability to create new jobs. In recent years, both Republicans and Democrats have focused on eliminating this deduction as a way of raising revenue.

The blueprint is only the beginning and not the end. Ways and Means Committee staff have indicated they are inviting comments and want to work with stakeholders to fill in the gaps. Currently, there is no accompanying legislative text to the blueprint and therefore no conventional revenue estimate, though proponents claim it is intended to be revenue neutral in the current economy.

Continued on next page

POLICY POINTS THE LATEST PUBLIC POLICY ISSUES IMPACTING THE MIDDLE MARKET Regulatory The highly publicized SEC settlement with Maryland-based private equity adviser Blackstreet Capital Management and its owner is among notable regulatory developments. The SEC said the firm engaged in brokerage activity and charged fees without registering as a broker-dealer, among other allegations.

Due to the SEC’s multiple charges it is difficult to determine how much emphasis was

Amber Landis

placed on the broker-dealer activity. Nevertheless, the move demonstrates the agency’s continued interest in unregistered broker-dealer activity, and emphasizes the need for private equity firms to be aware of the issue when they take securities-related transaction fees in connection with the purchase or sale of securities. ACG has held several calls with PERT members and is working with the SEC’s Division of Trading & Markets to gain additional clarity for ACG members and midsize PE firms.

Lastly, on June 28, the SEC proposed a new rule that would require investment advisers to adopt and implement written business continuity and transition plans. Currently, the SEC staff only expects advisers to address business continuity in their written policies and procedures to the extent relevant. The proposed rule, if adopted, would create a standalone requirement for such plans.

In the event of technological failures, cyberattacks, natural disasters, and the absence of key individuals or a substantial number of employees, “advanced planning and preparation can help mitigate the effects of such disruption, and in some cases, minimize the likelihood of their occurrence, which is an objective of [the proposed] rule,” said SEC Chair Mary Jo White.

The proposed rule would require an adviser’s plan to be based upon the particular risks associated with the adviser’s operations and include policies and procedures addressing items such as: • Maintenance of systems and protection of data; • Pre-arranged alternative physical locations; • Communication plans; • Review of third-party service providers; and • Plan of transition in the event the adviser is winding down or is unable to continue providing advisory services.

Comments to the proposed rule are due by Sept. 6, 2016. // If you have questions or comments, please contact Amber Landis, ACG Global vice president of public policy.

READ ONLINE // Find updates and insight on policy issues on the MMG website.

POLICY POINTS THE LATEST PUBLIC POLICY ISSUES IMPACTING THE MIDDLE MARKET

ACG Wins Prestigious Award for GrowthEconomy.org Groundbreaking Research Shows Jobs and Sales Growth from PE Investment

By Kristin Gomez On June 17, the American Society of Association Executives awarded the Association for Corporate Growth its prestigious “Power of A Summit Award” for ACG’s GrowthEconomy. org research project. The Summit Award is ASAE’s highest, given to associations that make exemplary commitments to “solve problems, advance industry/professional performance, kick-start innovation and improve world conditions.”

GrowthEconomy.org was originally developed to give visibility to the impact of private capital investment in Main Street companies, resulting in more U.S. jobs and revenue; it demonstrates that companies with this backing typically outperform privately held companies lacking such investment. Mostly important, GrowthEconomy.org helps ACG tell the story of private capital in a compelling way, showing that private equity is a major driver of jobs and sales growth in nearly every region of the United States.

Continued on next page

POLICY POINTS THE LATEST PUBLIC POLICY ISSUES IMPACTING THE MIDDLE MARKET ACG developed GrowthEconomy.org with the help of researchers at the University of Wisconsin-Extension and PitchBook. Now with the new primary establishment database from InfoGroup and cross-referencing data with PitchBook data, GrowthEconomy.org draws a correlation between private capital investment and growth in jobs and revenue in nearly every U.S. Congressional district and metropolitan statistical area from 1997-2015.

The database also serves as a successful education tool for ACG when ACG reaches out to policymakers about what its members do, how private equity is helping their communities thrive and why they need to carefully weigh legislation that could harm that growth.

“This ground-breaking research has helped ACG for the first time take a leadership role in advocacy for ACG members,” says Gary A. LaBranche, president and CEO of ACG Global.

“Today ACG is directly—and successfully—engaged with Congress, the Securities and Exchange Commission and others to ensure that the voice of the middle market is heard in Washington.”

ACG was one of six Summit Award winners among 147 entries, ASAE said. The awards are part of The Power of A campaign, which ASAE launched in 2009 “to increase awareness about issues that impact associations and to spotlight the expertise and resources available in the association community for policymakers and other key audiences.”

The first version of the GrowthEconomy project in 2013 was intended to show the power of middle-market investment through a three-pound, glossy, printed book, known affectionately for its “thud” factor when it hit the desks of lawmakers on Capitol Hill. The project also produced a dynamic website.

For example, if a user wants to find out how many jobs were added from private equitybacked investments between 2004-2008 in Illinois’ Fifth Congressional District, he or she can do so in real time on the GrowthEconomy.org site. Updated GrowthEconomy.org data for 1997-2015 is now available.

The Summit Award winners will be recognized at the 17th Annual Summit Awards Dinner, scheduled for October 5, 2016, at the National Building Museum in Washington, D.C. // — Kristin Gomez is vice president, communications and marketing, for ACG Global

R E G I S T R A T I O N

I S

N O W

O P E N .

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

# E U R O G R O W T H

GROWTH ECONOMY THE IMPACT OF MIDDLE-MARKET PRIVATE EQUITY

CALIFORNIA // 1995-2013 California has seen tremendous jobs and sales growth driven by private equity-backed middlemarket businesses, including a jobs growth rate four times that of all businesses in the state between 1995 and 2013.

+8020+T

107.6%

131.8%

JOBS GROWTH IN PE-BACKED BUSINESSES

27% JOBS GROWTH IN ALL BUSINESSES

SAN FRANCISCO CUPERTINO

CA

96,227

24.6%

JOBS CREATED

BY PE-BACKED BUSINESSES

SALES GROWTH IN ALL BUSINESSES

WESTLAKE VILLAGE LOS ANGELES TUSTIN

See the impact of middle-market private equity on your state at GrowthEconomy.org.

JOBS GROWTH % BY SEGMENT 10.3%

SAN DIEGO

SALES GROWTH % BY SEGMENT

MM Seg 1: $10-50M in sales

29.9%

MM Seg 2: $50-100M in sales

15.4%

20.2%

49.2%

24.7% .2%

KEY Small: Less than $10M in sales

5.2% 44.8%

0%

SALES GROWTH IN PE-BACKED BUSINESSES

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

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

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

After Brexit: How to Succeed in Cross-Border Business EuroGrowth 2016 Offers the Latest Best Practices and Analysis What a difference a day makes. With the repercussions of the recent Brexit referendum still to be determined, now more than ever M&A professionals need access to expert intelligence to help navigate murky cross-border dealmaking waters.

Britain’s decision to exit the European Union makes this year’s EuroGrowth 2016 more important than ever for those interested in investing and growing their business overseas.

Join more than 200 financial professionals and capital providers from all segments across Europe and the globe for two days of nonstop networking and deal flow on Oct. 20-21 at the Hotel Arts Barcelona in scenic Barcelona, Spain.

Jamie Murray, chief economist for Bloomberg’s Europe, Middle East and Africa regions, will deliver the keynote address. Plus, topics for this year’s breakout sessions and roundtable discussions include: • Brexit’s effect on investing and M&A • Trends in valuation in the United States and Europe • FinTech—a case study in PE dealmaking • And more…

Registration is now available through Oct. 14. For complete details or to register, visit www.

EuroGrowth.org. //

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS Get involved! This fall, 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.

An influential dealmaker draws crowd to Denver event Left: Mitt Romney, former governor of Massachusetts and one-time presidential candidate, keynoted ACG Denver’s Rocky Mountain Growth Conference in April. Right: Romney with Dorothy Donnelly, ACG Denver’s Executive Director

ACG 101 the Corridor

ACG Minnesota Chapter

ACG Boston Chapter

ACG New York Chapter

ACG Central Texas Chapter (Austin & San Antonio)

ACG Orange County Chapter

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ACG Philadelphia Chapter ACG Chicago Chapter

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ACG Richmond Chapter ACG Connecticut Chapter

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ACG South Florida Chapter ACG Kansas City Chapter

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ACG Tampa Bay Chapter ACG Los Angeles Chapter View Calendar

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Had a newsworthy chapter event?

Send a 150200 word summary and high-resolution photos to Editor-in-Chief Deborah Cohen.

I T ’ S

Y O U R

D E A L .

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

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

THE ROUND NEWS THAT MATTERS

ACG Partner PitchBook Appoints Diefendorf COO Longtime ACG Global partner PitchBook, a leading provider of global venture capital, private equity and M&A data, has hired tech startup veteran Rod Diefendorf as chief operating officer.

“Diefendorf will help develop strategy, scale the business, increase efficiency across the organization and drive the company in its continued growth,” Seattle-based PitchBook said in a statement announcing the hire on June 8.

Diefendorf, who spent more than 23 years helping to build companies including InfoSpace, Idearc Media and Go2Net Inc., will help PitchBook meet a goal of hiring about 100 new employees this year for a total of more than 600, the company said.

Most recently, he developed and led a division of Seattle-based Marchex, a mobile advertising analytics company, before selling it to GoDaddy for more than $40 million.

“Rod has a proven track record of identifying new opportunities, developing operational strategies and executing,” said PitchBook founder and CEO John Gabbert, in the statement. “At PitchBook, we’re always looking for better, more efficient ways to operate so we can continue to maximize our potential. We’re excited to bring Rod’s rich experience in corporate development, sales and marketing, private equity and earlystage startups to help PitchBook achieve scalability and, most importantly, better serve our customers.”

With offices in Seattle, New York and London, PitchBook currently serves more than 1,500 customers in 37 countries around the world. //

Data Analytics Is Altering M&A Marketplace Data-driven technology is helping to shape merger decisions, and 64 percent of respondents in a recent Deloitte survey say they had increased their use of data analytics as part of their M&A analysis.

Nearly two-thirds of corporate leaders polled in the survey— “Deloitte M&A Focus on: Analytics”—say they use data analytics as part of their deal evaluation process.

Deal-makers are increasingly “turning to analytics to help unearth potential risks and hurdles to good integration and post-deal execution,” writes the study’s author, Anna Lee Doyle, a principal in the firm’s consulting division. “For example, we have seen the use of automated natural language processing to assess the intellectual property of an acquisition target, and to cross-reference those findings with other databases.”

Other applications include the use of data to clarify contracts and legal arrangements and to analyze a target’s talent pool and compensation structure, writes Doyle in a summary of the study.

See the full results here. //

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // PLAYING TO WIN

1.6

$

billion

Chinese internet provider Tencent Holdings has become a player in the gaming space, acquiring the remaining shares of Riot Games, the U.S. gaming company responsible for League of Legends, in December 2015.

Middle-market private equity has maintained its appetite for dining opportunities, with deals such as Sentinel Capital Partners’ reported $800 million takeover of TGI Friday’s in 2014.

13.5

$

36.4

$

billion

5.9

Entertainment deals hit $36.4 billion in total value in 2015, close to their yearearlier level of $37.0 billion.

billion

Entertainment software deals are as prolific as Farmville, with $13.5 billion in total value last year, up from just $428 million in 2010.

$

billion

Corporate acquirers have been active in the entertainment space.

One major deal was the $5.9 billion takeover of Candy Crush Saga game developer King Digital by Activision Blizzard in February 2015.

*Data from PitchBook. Reported deal values from media reports.

“A lot of gaming companies are making games that you can continually play and make additional purchases. In the gaming space, that is a trend that will continue.”

—Henry Apfel, Data Analyst, PitchBook

ACG INTRODUCES THE

G U I D E T O P RIVATE EQ U I TY RE GULATORY C OMP LIA NCE When the SEC examines your private equity firm, what will they find? Many private equity firms are at risk of SEC enforcement actions because they overlook—or misinterpret— recent rule changes that dramatically affect the ability to raise capital, interact with investors and meet all-new reporting and disclosure requirements. The Guide covers a broad range of regulatory issues including: •

Fees and expenses

•

Cybersecurity

•

Portfolio company valuations

•

And much, much more!

PRE-ORDER YOUR COPY NOW AT WWW.THOMPSON.COM/EQUITY

Published in partnership with

© 2016 Association for Corporate Growth. All Rights Reserved.

CROWDSOURCING // Gaming’s Brave New World

THE FUTURE OF

Mobile Gaming Skillz Ups the Competitive Ante

BY S.A. SWANSON

Photos by Craig Sherod

SKILLZ // Business: Online gaming platform where winners win real money Reach: More than 1,000 games and 9 million active players CEO and Co-Founder: Serial entrepreneur Andrew Paradise Funding: $28 million to date Website: www.skillz.com

D

o I want to start another company? That’s what Andrew Paradise pondered in 2012. At age 28, he’d already struck entrepreneurial gold selling his mobile payment company AisleBuyer to tax-prep software company Intuit, reportedly for more than $80 million. “It would have to be something I really wanted to work on for a big chunk of my life,” he says.

That “something” was gaming. In eighth grade, Paradise spent 40-plus hours a week creating online computer games to play with friends. “I would wait until my parents fell asleep and stay up all night to work on it,” he recalls.

For his startup, Skillz, Paradise decided to build technology that gives mobile game players more opportunities to compete—and helps game developers earn more money. With the Skillz technology platform, developers can create games with capabilities that would otherwise be cost prohibitive. Players who use Skillz-enabled games can compete for cash or prizes, and the games can also be live streamed and replayed. This allows game developers to generate additional sources of revenue, instead of relying on download fees, advertising or in-app purchases.

Co-founded in March 2012 with Casey Chafkin, AisleBuyer’s former VP of business development, Skillz aims to democratize the world of e-sports. E-sports involves competitive video games that usually require plenty of strategy and weaponry (like Halo or League of Legends), along with an audience—and an elite group of players. Competition is accessible to about 1 percent of players, says Paradise, who serves as CEO, adding: “People complain about this a lot.” That’s changing with Skillz, which allows casual mobile game players to compete in tournaments.

It’s a business idea grounded in the company’s trademarked phrase: “eSports for Everyone.”

A NEW SPIN ON COMPETITIVE GAMING

EGALITARIAN GAMING // Skillz Chief Product Officer Bill Mooney and Co-Founder Casey Chafkin

Competition isn’t new for video games—ask anyone who vied for top Pong scores in the 1970s. But the audience for gaming has expanded dramatically. Within the past year, TBS and ESPN2 have aired e-sports competitions and U.K. broadcaster Sky announced an e-sports channel (South Korea has had one for several years). At least four U.S. universities offer scholarships in e-sports. And according to research firm Newzoo, the global e-sports market will reach $463 million this year. By 2018, it could hit $765 million.

Four years ago, that market potential wasn’t so obvious. When Paradise approached venture capitalists, their response was, e-what?

But at Atlas Venture, Partner Jeff Fagnan saw what e-sports represented—online communities of people hooked on competing for prizes. His Cambridge, Massachusetts, VC firm already witnessed that phenomenon in daily fantasy sports, having led the seed round and Series A funding for DFS site DraftKings. Fagnan also recognized that Paradise’s business idea could improve the economics of mobile gaming. “There’s been an explosion in casual mobile games, but you see them struggle with how to retain that audience and how to monetize it,” says Fagnan, who is also founder and partner of the VC firm Accomplice, formed in 2014 from Atlas Venture’s tech investment group. In 2012, Atlas Venture contributed to a $1.25 million seed round for Skillz and led a $5.5 million series A round the next year. But those deals almost didn’t happen.

“THE BROAD VISION OF THE COMPANY IS REALLY TO BECOME THE MULTIPLAYER SOCIAL FABRIC ACROSS ALL APPS.” Andrew Paradise, CEO, Skillz

“Andrew has a unique distinction. He was the first investment I’ve ever done where I didn’t like the person at my first meeting,” says Fagnan, adding that the problem was “too much pizazz, too slick in the presentation and a little bit of arrogance.” When Paradise emailed afterwards, Fagnan told him the pitch didn’t warrant follow-up. But they met for dinner and “broke through the ice,” says Fagnan, who learned that Paradise’s previous VC experiences weren’t positive. “I said, Okay, I can work with this person, and I do like him,” he says. “I will absolutely never invest in a founder unless it‘s someone who I really believe in.”

Skillz, which has headquarteres in San Francisco and an additional office in Boston, provides its software development kit free for game developers. For the additional business those developers generate using the Skillz platform, whether through competitive gaming, ticket sales for spectators or advertising, the standard revenue share for Skillz is 50 percent.

PLAYING FOR KEEPS When the platform launched in April 2013, Skillz struggled to get just 10 games from developers. Now it has more than 1,000 games and in excess of 9 million active players (49 percent are women) who can compete for cash in regions that allow it. That represents about 80 percent of the world, according to Skillz, including 38 U.S. states.

Last year a gamer won more than $100,000 playing “Strike! Real Money Bowling”—which placed his income above the fifth-highest-paid bowler in the Professional Bowlers Association. The developer company behind that game is U.K.-based Touch Mechanics. Co-founder Carl Crossley says Skillz contacted him after seeing Touch Mechanics’ bowling game in Apple’s App Store. “It took us a week to create the new game with Skillz embedded.

Probably the most lucrative week we have ever spent,” he says. “Whenever we start creating a new game, we discuss whether we can integrate Skillz into it.”

In July 2015, Skillz added live streaming. It allows tournament organizers to broadcast mobile games with the streaming service of their choice—including Twitch, the popular game-streaming site Amazon purchased in 2014 for $970 million. The rollout was supported by $15 million in series B funding, completed in September 2015. Led

by Wildcat Capital Management, it included investments from The Kraft Group, which owns the New England Patriots, and Marc Lasry, a Milwaukee Bucks co-owner.

Skillz also included the ability to record and replay games. “When you enter a tournament and someone gets twice your score, you will probably want to see how they did that,” says Miriam Aguirre, Skillz’ director of engineering. The company will broadcast 40 million minutes of competitive mobile gaming this year, up from 8.5 million minutes in 2015. Some of the live-streamed tournaments have had more than 400,000 views.

Cash prizes always attract cheaters, and Skillz has technology to address that, as well. “We use a lot of machine learning here, where we train models to respond to aberrations,” including unusually high scores, Aguirre says. Before enabling cash competition on a game, Skillz starts with practice currency to train models on live data. Cheaters are banned from all Skillz games, and to prevent their return, the company can detect if the geocoordinates of a new player match those of a recently banned one.

But there’s a bigger data science problem: Matching players with similar abilities. It’s essential for player satisfaction, because no one likes getting crushed. “We are always trying new algorithms and continuously improving how we match players,” Aguirre says. “It needs to be good to keep players engaged. Otherwise, they will leave and find something else to do.“

COFOUNDERS // Paradise and Chafkin

A GROWING AUDIENCE

“WHAT’S INTERESTING ABOUT SKILLZ IS IT‘S TAPPING A NEW AUDIENCE BEHAVIOR, A SORT OF PURE COMPETITION.” Bill Mooney, Chief Product Officer, Skillz

About 47 percent of U.S. smartphone users play mobile games daily, up from 28 percent in 2013, according to a survey by Magid Advisors, a unit of research firm Frank N. Magid Associates that concentrates on the internet and mobile gaming. “[Andrew Paradise] is definitely a visionary,” says Mike Vorhaus, Magid Advisors president. “Four years ago, he saw that people could have an e-sports-type competition, for real money, with casual mobile games—just like they have for the more hardcore games. He saw it coming when no one else did.”

Vorhaus knows some people question the appeal of esports. “They kind of sneer at it and go, ‘Oh my god, they’re watching people play video games,’” he says. “And I think, ‘Well, that’s how I feel about watching golf.’”

Skillz has enlisted some top talent, including Trip Hawkins, the Electronic Arts founder who became Skillz strategic adviser in 2014. Another recent EA recruit is Bill Mooney, who joined as Skillz’ chief product officer in February. He served as senior vice president and group general manager at EA Mobile, and was a studio vice president at Zynga, the company behind FarmVille. “What’s interesting about Skillz is it’s tapping a new audience behavior, a sort of pure competition,” Mooney says. “You can play the exact same game without a Skillz component and it‘s not as fun.” That helps boost a vital industry metric: Day 30 retention, or D30, the percentage of users who still use a game 30 days after they start playing it. According to Skillz, its technology increases D30 retention by an average of 24 percent.

Another important number for the company is 35. That’s how many Skillz games each employee must play weekly.

Those who fall short have to write an essay about gameimprovement ideas for the product team. “People can play at the office—it’s like a half-hour of gaming a week, minimum, to work here,” says Paradise, who created the policy during the company’s first three months, when it had 10

employees. As of June, there were 50, and Paradise says headcount could double by year-end. Skillz’ games are currently played in 180 countries and available in nine languages. “Other competitors do some of what we do, but we have the most developed technology platform,” says Paradise, noting the company has five patents and 12 more pending.

Expect Skillz to amp up competition with more online endeavors.

Paradise says it’s working on a competitive running app with augmented reality features. The company will likely support tournaments for educational apps, too. “Multiple parent-teacher associations have contacted us about that,” he says. Meanwhile, a stock trading app developer wants Skillz to create user competitions. Although Paradise’s gaming passion helped launch Skillz, the company’s technology may ultimately extend far beyond esports. “Even for us, video gaming is not the be-all, end-all,” he says. “The broad vision of the company is really to become the multiplayer social fabric across all apps.” // S.A. Swanson is a business writer based in the Chicago area who frequently explores technology.

MEETING your

MATCH CULTURE IN THE M&A PROCESS

BY MYRA THOMAS

W

hen it comes to buying or selling a middle-market company, due diligence is very much a numbers game. But besides the cash on the table and the nitty-gritty of contractual details, the cultural fit of the acquirer and target can make or break the deal. And while no one expects a perfect match at the outset, the two parties need to find common ground on important issues: shared company vision, growth opportunities, strategic plans, management style and investment in talent.

If there’s a generous offer on the table, considerations about culture can easily fall by the wayside. But sellers and buyers should think long term to avoid hasty decisions, says Tom Stewart, executive director of the National Center for the Middle Market at The Ohio State University. He recommends all parties take a step back from negotiation to assess their comprehensive expectations for the deal, including how well they work together as a team. “There are things to consider beyond purchase price, and culture is high on the list,” he says.

THE COURTSHIP Buyers will inevitably meet with the seller’s management, talk with employees and customers, visit company sites and get the lowdown from industry sources. Sellers, too, need to spend time meeting face to face with the investment team, including visiting the offices of potential private equity partners to assess their culture. They must determine if the investor is interested in a long-term investment or shortterm cash flows and a quick exit. “Find out what their ideal acquisition might be and why they selected your company over another,” Stewart says. Look at the investor’s track record. A disconnect between buyer and seller on these issues can indicate a culture clash, and the value of the deal can quickly dissipate.

“THERE ARE THINGS TO CONSIDER BEYOND PURCHASE PRICE AND CULTURE IS HIGH ON THE LIST.” Tom Stewart Executive Director, National Center for the Middle Market

Michelle Mikesell Managing Director, Consulting and Development, Insperity

Smart sellers will get input from internal and external partners before the deal moves forward. The opinions of the management team, board, key employees and trusted customers should all factor into the decision; early buy-in from those stakeholders is critical to the lasting success of the deal. Stewart says the seller should also talk to the CEOs of other companies the investor acquired. The seller’s banker and auditor are also good intelligence sources. Third-party consultants are particularly useful during due diligence to evaluate cultural fit, says Michelle Mikesell, managing director of midmarket consulting and development at Insperity.

“They don’t have a stake in the transaction, and they don’t have a real bias,” she says.

Mikesell advises clients to look for red flags in the initial meetings between buyer and seller. She recommends that sellers pay close attention to any disagreements. While tension during negotiation is normal, too much friction could be a bad omen. “Think about the climate of the transaction and if there’s open communication during the due diligence process,” she says.

IT’S PERSONAL

Allie Harding Consultant and Researcher, Orange Kiwi

Not surprisingly, sellers can be very protective of their reputation, especially when their name is on the door. “It can be a very emotional process, particularly for owner-operators,” says Ramsey Goodrich, a managing director with investment banking firm Carter Morse & Mathias and a board member of ACG Global. “The buyer needs to embrace what made the company special in the first place. They need to know the value of the brand,” he says.

If owners and other senior executives stay on after a sale is completed, they must recognize that the culture will likely change, says Allie Harding, a consultant specializing in corporate transitions. “Moving into a larger firm, which is almost always the case with a low-to-mid-market M&A deal, means the owner might have to operate and adapt to ways that often run contrary to their natural wiring,” she says.

For instance, a larger firm might not be as agile as a midsize one. And even when founders plan to completely cash out and walk away, they often still fret about preserving the environment that made their company successful in the first place. That includes the tenure of relationships with employees, customers, suppliers, and vendors, she says.

Evaluating cultural fit with a buyer can be a complicated process, says Doug Frey, founder and former co-owner of Desert NDT, which performs compliance tests for oil and gas pipelines. Sterling Partners, a private equity firm, invested in Desert NDT in 2012. Frey served on the company’s board until Sterling Partners sold the business in 2014 to energy services company ShawCor. Frey notes that money can’t be the only deciding factor. “For me, the important thing to keep in mind was to aim for the same set of values— financial, future vision, people and family—with the firm I planned to partner with,” he says.

Frey advises paying close attention not just to what would-be buyers say, but also to how they act. “Several of the firms we were discussing selling to made a big show of how successful they were by spending lavishly and traveling first class,” he recalls. “It made me think about how I would feel having them travel on my dime. After all, that would be the source of their money in the future if we did a deal.”

Steven Taslitz, founder and chairman of Sterling, says that during due diligence potential sellers note everything from the style of the offices to the dress code and available perks. “Maintaining the existing culture of the company is extremely important to keeping employees happy and giving them a degree of comfort during a transitional time,” he says. “Sellers should find a firm that understands their vision, appreciates the blood, sweat and tears they’ve poured into their business. Culture permeates all aspects of a business—the vision, the working environment, the team—so it’s important for everyone to be on the same page.” // Myra Thomas is a business writer based in northern New Jersey.

“...AIM FOR THE SAME SET OF VALUES--FINANCIAL, FUTURE VISION, PEOPLE AND FAMILY...”

Doug Frey Founder and former Co-Owner, Desert NDT

Ramsey Goodrich Managing Director, Carter Morse & Mathias

FIND YOUR IDEAL

CANDIDATE WITHOUT SORTING THROUGH HUNDREDS THAT AREN’T.

P O S T Y O U R J O B O P E N I N G T O D A Y. J O B S O U R C E . A C G . O R G

© 2016 Association for Corporate Growth. All Rights Reserved.

QUICK TAKES MARK GOLDSTEIN // President and CEO, Entertainment Partners

Entertainment Partners Sets the Stage for Hollywood

W

ow, it looks like that guy is straight out of Central Casting. Who hasn’t heard that expression used to describe someone whose appearance matches his job?

Central Casting, however, is an actual Hollywood

business that hires extras for a range of studio productions; the 90-year-old concern is just one of several services run by Burbank, California-based Entertainment Partners.

And while most of the excitement in Hollywood centers on the set of film and television production, it’s what goes on behind the scenes

BIO // Mark Goldstein joined Entertainment Partners in 2002 and, in 2004, led its transition from a privately held company to a 100 percent employee-owned organization. He has a long history with the company, having previously worked as consultant to the business for more than 13 years at Deloitte and Touche. Prior to becoming CEO, he was partner in charge of Deloitte’s Los Angeles Lead Tax Services Group. Goldstein has led successful efforts to change legislation on behalf of the industry, garnering support from the government as well as the industry’s unions, guilds and major studios.

that enables the cameras to keep rolling.

Entertainment Partners handles everything from payroll and benefits for cameramen, set designers and other crew to a host of financial services for the production houses themselves.

“We work with all the major studios—every division from feature film to television and commercials,” the company’s CEO, Mark Goldstein, tells MMG, citing clients such as Lion’s Gate and Amazon to a host of independent studios.

Entertainment Partners, which turns 40 this year, is 100 percent employee owned and classified as an ESOP. It has four major business areas: besides casting so-called background actors and processing payroll, it manages tax incentives such as the most tax-friendly cities to film in and offers technology solutions including the ability for contract workers to fill out their employment forms online. The business depends on 1,100 corporate employees in 14 offices throughout the United States.

Continued on next page

QUICK TAKES MARK GOLDSTEIN // President and CEO, Entertainment Partners

“THERE’S A BIG SHIFT IN THE INDUSTRY TO GO PAPERLESS, TO BRING A LOT OF EFFICIENCIES TO PRODUCTION,” Mark Goldstein, Entertainment Partners CEO

Keeping track of all those I-9s, W-4s and related documents takes a big load off the studios, Goldstein says, while also providing stability to the workers.

“Production workers will work on anywhere from three to eight productions in a given year,” he says. “They will go from company to company—we become the constant for that worker throughout the year.”

He declines to give specific financial metrics, but concedes that Entertainment Partners controls “more than a majority of the market share in feature film and television.”

And the company has been busy helping to consolidate the industry. Just over a year ago, it purchased rival firm Ease Entertainment Services of Beverly Hills to boost its technology capabilities in cloudbased software.

“There’s a big shift in the industry to go paperless, to bring a lot of efficiencies to production,” Goldstein says. “We have a huge effort around reinventing how the entertainment industry works and interacts through our digital offerings.” // —DLC

A QUALIFIED OPINION ANDREW VOGEL // Partner, ZMC

BIO //

“THE PROLIFERATION OF DIGITAL VIDEO CONSUMPTION OUTLETS HAS ACCELERATED ONE OF THE MOST SIGNIFICANT SECULAR TRENDS IN THE MEDIA INDUSTRY TODAY—AUDIENCE FRAGMENTATION.”

A

ndrew Vogel joined Zelnick Media Capital in 2003.

He is responsible for originating, structuring and monitoring investments. Vogel currently represents ZMC on the boards of Education Networks of America, 9 Story Media Group, Alloy L.L.C., Defy Media and Cannella Response Television. He was previously on the board of Cast & Crew Entertainment Services, L.L.C., Airvana LP and Tekelec.

Prior to joining ZMC, Vogel worked at Ripplewood Holdings, a private equity firm where he focused on investments in the media, consumer and industrial sectors. He also worked at McCown De Leeuw and Co., a private equity firm where he was responsible for investments in the consumer, building materials and health and leisure industries, including the firm’s investment in 24 Hour Fitness. Previously, he was an investment banker in Lehman Brothers’ Mergers and Acquisitions Group and interned as a management consultant for McKinsey & Company.

WHAT IS YOUR OUTLOOK FOR MEDIA GOING INTO 2017?

T

he amount of change and disruption we have seen in the entertainment and media landscape is unprecedented, and that allows for unique opportunities to invest capital. Media consumption is skyrocketing, creating new models for how content is organized, discovered and delivered—all of which is informed by continuously evolving technology and monetization models. As a result, the media world is becoming more nuanced than ever, requiring expertise and first-hand knowledge of the sector and its players.

At ZMC, we pride ourselves on our deep industry expertise and relationships to help create value in the companies in which we invest.

A QUALIFIED OPINION ANDREW VOGEL // Partner, ZMC

HOW HAS THE PROPENSITY OF CHOICE (NETFLIX, HULU, ETC.) IMPACTED INVESTING IN THE ENTERTAINMENT AND MEDIA SECTOR?

T

he proliferation of digital video consumption outlets has accelerated one of the most significant secular trends in the media industry today—audience fragmentation. Remember the era when a family of four would sit down to watch a television show at an appointed time?

Doesn’t exist anymore. The availability of on-demand content from digital players like Netflix and Hulu, together with hundreds of linear channels from cable and satellite providers, has made it more difficult to aggregate mass audiences.

As a result, providers are highly driven to produce compelling original content that can’t be found elsewhere, which in turn has fomented a boom in the volume of content being produced. Showing Seinfeld reruns is no longer an adequate way to aggregate an audience as that content can be found elsewhere. ZMC identified this trend a few years ago and has been actively investing behind it. One example is 9 Story, a leading producer and distributor of children’s animated content. Children’s and family programming is the most consistent driver of subscriber acquisition and retention for digital video subscription services. Another example was our investment in Cast & Crew, the premier provider of technology-enabled payroll processing and related services to the entertainment content production industry.

“WE HAVE OBSERVED AN INCREDIBLE RISE IN NICHE PLAYERS REACHING VERY SPECIFIC, ENGAGED AUDIENCES WHO ARE WILLING TO PAY FOR CONTENT THAT IS IMPORTANT TO THEM”

A QUALIFIED OPINION ANDREW VOGEL // Partner, ZMC DOES CONSUMERS’ DESIRE TO UNPLUG FROM CABLE AND PURCHASE MEDIA A LA CARTE AFFECT THE WAY YOU EVALUATE AN INVESTMENT?

C “THE ADVANCEMENT OF TECHNOLOGY HAS TRIGGERED A PROFOUND CHANGE WITHIN THE INDUSTRY THAT HAS HAD MAJOR RIPPLE EFFECTS ON VIRTUALLY ALL PARTS OF THE MEDIA LANDSCAPE.”

ord cutting, skinny bundles and a la carte media are further offshoots of the impact from media and audience fragmentation. Content is no longer required to be part of a cable system or bundle to achieve mass distribution levels and reach viewers. We have observed an incredible rise in niche players reaching very specific, engaged audiences who are willing to pay for content that is important to them. The flipside is that as demand for the bundle dwindles, the affiliate fee and advertising revenue streams that support cable channels are likely to come under pressure, particularly for secondary and tertiary networks that do not have must-see content. These trends will impact how media is produced, financed, distributed and consumed—all of which are considerations that will impact investments in the sector.

WHERE IS MOST OF THE OPPORTUNITY FOR ENTERTAINMENT/MEDIA INVESTORS IN THE MIDDLE MARKET?

T

he advancement of technology has triggered a profound change within the industry that has had major ripple effects on virtually all parts of the media landscape. ZMC takes a largely thematic approach to finding investment opportunities. We identify several big-picture trends that we believe will have a significant impact on the media and communications industry, and identify the segments and individual companies within the middle market that could benefit the most. Our themes run the gamut from exploring opportunities within content search and discovery, outsourced media services, over-the-top/TV everywhere ecosystem, live events, sports media, and of course, media and audience fragmentation.

A QUALIFIED OPINION ANDREW VOGEL // Partner, ZMC WHAT DOES THE CHANGING CONSUMER EXPERIENCE IN THEATERS (INCREASED LUXURY, DRINKS, MEALS, BIGGER SEATS, ETC.) MEAN FOR INVESTMENT?

O

ne of the consequences of our ability to have so much content at our fingertips is that consumers are now craving unique in-person social experiences. Theaters are responding to that trend by creating richer, more immersive experiences for movie-goers. More generally, however, there has been robust demand for live events across the board, including festivals, concerts and other experiential events. For example, ticket sales from concerts in North America have grown on average by more than 8 percent annually since 2000. The ecosystem around live events—ticketing, merchandising, advertising, event services—makes up a market worth more than $50 billion.

Bottom line, it represents a huge opportunity that is only growing bigger. Exploring investment opportunities in and around live events has been a major theme for ZMC. The industry is still highly fragmented and ripe for private equity capital for growth and consolidation. //

“ONE OF THE CONSEQUENCES OF OUR ABILITY TO HAVE SO MUCH CONTENT AT OUR FINGERTIPS IS THAT CONSUMERS ARE NOW CRAVING UNIQUE IN-PERSON SOCIAL EXPERIENCES.”

P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .® To d a y ’s f a s t - p a c e d m a r k e t r e q u i r e s a n e d g e . A C G G l o b a l P a r t n e r s prov ide y o u wit h t h e e x pe r t is e a n d be s t pr a c t ic e s n e e de d t o c l o se t he d e a l .

L E A R N M O R E A B O U T A C G PA R T N E R S H I P S , V I S I T A C G . O R G / PA R T N E R S H I P S © 2016 Association for Corporate Growth. All Rights Reserved.

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

HOLLAND NEW YORK

TAP CITIES TO NAVIGATE TO ARTICLE

ACG HOLLAND

ACG Holland Delivers First Growth Awards ACG Holland in June held its first annual Growth Awards ceremony, recognizing the achievement of midsize companies and their advisers in the Netherlands. More than 100 deal-makers attended the event at A’DAM Toren in Amsterdam.

Suitsupply, a website that allows men to design their own suits, won in the category of Outstanding Growth Award; fitness chain Basic Fit (advised by 3i) took the Deal of the Year Award, while Holland Corporate Finance, which specializes in middle-market M&A, won the Best ACG Holland Advisor Award.

ACG Holland also awarded a Lifetime Achievement Award to Hans van Ierland of HPE Growth Capital in recognition of his work helping to set up the chapter in 2005.

Since that time, ACG Holland has grown to 150 members, including deal-makers, CEOs, CFOs and business development directors. //

ACG@WORK CHAPTER NEWS FROM AROUND THE GLOBE

ACG NEW YORK

ACG New York Hosts ‘Disruptive’ Media/Telecom Event ACG New York’s Tech Media and Telecom Conference on May 24 was full of pull-nopunches panels, acid moments about market disruption and a look at opportunities within a fast-changing market. Following are some insights from the event, with themes ranging from the growing demand for more children’s content to the likelihood that New York may soon give rise to startups with unicorn valuations:

1. Deal Volumes are Down: If It Gets Done, It’s about Cost Savings “Sellers still have a 2015 mindset,” said Jason Sobol, senior managing director, Evercore. “But buyers—whether they’re strategic or financial—are looking at uncertainty in the marketplace and pricing that in.”

2. Mercenary Approach: It’s Important to Be an ‘Arms Dealer’ Andrew Vogel, a partner with Zelnick Media Capital (see this issue’s A Qualified Opinion) said buyers often look for an “arms dealer,” a company in the ecosystem who’ll benefit no matter who wins or loses in the market.

3. Brands and Content: New Ecosystems Are Needed Entirely new content production ecosystems will be needed to facilitate consumer engagement, said Kenneth Harrell, co-founder of Pharus Advisors. //

P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .ÂŽ Yo u on

can all

rely

on

aspects

operations,

ACG of

Global

M&A

taxation,

Partners

transactions, regulatory

as

trusted

including issues

advisers financing,

and

more.

L E A R N M O R E A B O U T A C G PA R T N E R S H I P S , V I S I T A C G . O R G / PA R T N E R S H I P S Š 2016 Association for Corporate Growth. All Rights Reserved.

THE PORTFOLIO INSIGHT FROM THE EXPERTS

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

IN THIS ISSUE

BY THE NUMBERS With the right investment structure, entertainment ventures can minimize the tax burden on investors.

Many states and localities provide significant tax incentives and other forms of tax-free assistance for choosing their locales.

MID-MARKET TRENDS Unlike the core or upper middle market, the lower middle market is generally insulated from megatrends—its small, regional businesses have less urgency to sell based on market dynamics.

SOUND DECISIONS

MID-MARKET TRENDS

Information can be a company’s most valuable asset. That’s particularly evident during acquisition transactions, when both buyers and sellers must treat data with extra care.

The entertainment and media sector may be down, but don’t count it out. There appears to be momentum on the horizon.

COMING SOON Check out the Portfolio section of the winter 2017 issue for more on the latest middle-market trends, written exclusively by our team of ACG Global featured firms. To learn more about contributing to this section, please contact Maggie Endres at (312) 957-4257.

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

THE PORTFOLIO

BY THE NUMBERS // Mel Schwarz, Partner, Grant Thornton LLP

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

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Entertainment and Taxes: Will the Dude Abide?

T Tax incentives abound in the entertainment sector.

he entertainment industry, particularly movies and television, enjoys many tax benefits. Filmmakers can immediately deduct productions of up to $15 million (the original budget for the Coen brothers’ cult classic “The Big Lebowski”), and all productions benefit from the domestic production activities deduction, or DPAD. With the right investment structure, entertainment ventures can minimize the tax burden on investors.

Many states and localities provide significant tax incentives and other forms of tax-free assistance for locating production within their borders. Collectively, the incentives can really tie a movie together.

Immediate Concerns

pensive—and would likely be paid for by

Expensing is scheduled to expire for

eliminating provisions that benefit vari-

small productions that begin after 2016.

ous groups of taxpayers.

Congress has extended this rule five

A rate cut’s design will determine if

times in the past, but no guarantees exist

it benefits all of the entertainment in-

for additional extensions. Because the

dustry. If tax reform only reduces the

election season has limited the time Con-

corporate rate without providing any cut

gress spends in Washington, legislation

in individual rates or for active business

that extends expiring provisions may

income, that could leave out much of

have to wait until after November.

the entertainment industry. Entertainment ventures organized as partnerships

What Could Tax Reform Hold?

would not share in the rate cut. They

Congress has been discussing a funda-

could elect to incorporate to access the

mental rewrite of the tax laws. For most,

lower rates, but would then lose the abil-

the primary benefit of business tax re-

ity to pass any losses through to their

form will be a reduction of the top rate.

investors—either during initial stages

While many in Congress would like to

of production or if the production fails.

bring the rate to zero, a significant reduc-

Capital could become harder to raise.

tion in tax rates will be incredibly ex-

THE PORTFOLIO

BY THE NUMBERS // Mel Schwarz, Partner, Grant Thornton LLP

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

The most direct response to this prob-

Mel Schwarz

Even with a rate cut and a shift to ter-

lem would be a cut in individual rates, but

ritorial taxation, tax reform will present

that may be politically difficult. Congress

challenges. In the early part of this centu-

should consider a business equivalency

ry, tax reform was a synonym for tax re-

rate to guarantee that when business in-

duction. With the public’s share of the na-

come from an active trade or business is

tional debt estimated to exceed 80 percent

passed through to an individual, it’s not

of GDP in the near future, rate reduction

taxed higher than the top corporate rate.

and a shift to territorial taxation will have

This would allow for equal treatment of

to be at least partially offset by a broad-

any entertainment venture, no matter how

ened tax base. The extent of those changes

it is organized, and would preserve exist-

will determine if the entertainment indus-

ing methods of capital formation.

try benefits from tax reform. //

Today, each dollar earned on ticket sales in a foreign country with a 25 percent tax

Mel Schwarz is a partner in the Washington

rate is charged 25 cents by the foreign

National Tax Office of Grant Thornton LLP.

country, and then an additional 10 cents in U.S. tax when the money is repatriated. Congress has discussed moving to a territorial system, in which tax would be limited to the 25 cents paid to the foreign country. As a leading exporter, the entertainment industry would benefit if our current worldwide system of taxation shifts to a territorial system.

THE PORTFOLIO SOUND DECISIONS // Ute Mueller and Carl Winkworth, Partners, Duane Morris, London, UK

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

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Data Protection and the M&A Deal: Ask Questions to Avoid Errors

Data protection should be an essential part of any deal.

I

nformation can be a company’s most valuable asset. That’s particularly evident during acquisition transactions, when both buyers and sellers must treat data with extra care. If they don’t, the consequences can be expensive and time-consuming, regardless of whether the transaction proceeds.

Ignore data protection laws at your

If the transaction proceeds, the buyer

peril. Gone are the days of sleepy data-

must understand several factors related to

protection regulators who rarely inter-

data, including the information it will ac-

vene—they have teeth and are increasingly

quire; the role it plays in the business; how

willing to use them. Consider that the Data

that data is currently handled; which laws

Protection Authority of Bavaria recently

and restrictions apply; and the seller’s own

imposed significant fines on both the seller

compliance record.

and buyer of a company, due to unlawful

To avoid data challenges that can un-

transfer of customer email addresses. The

dermine a deal, consider these questions

Data Protection Authority also announced

at each stage of your planned acquisition:

plans to monitor companies more closely, particularly in M&A transactions.

Pre-Transaction:

The way a seller handles data can often

••What is the data, how is it used, where is

determine a transaction’s overall success.

it located (including routine/emergency

In any deal, the content of the data room

back-up and cloud storage) and is it core

is largely determined by the seller—and in

to the business?

practice, it contains no more (or less) than

••Which laws (including contractual

is needed to sell the business. The seller

restrictions) apply and is the seller

must therefore understand the buyer’s

compliant?

level of sophistication, familiarity with

••Is the seller permitted to sell or transfer

the business and motivation for the acqui-

the data? Will this affect the structure of

sition. This will streamline the process,

the deal?

making it more efficient and ultimately less costly.

THE PORTFOLIO SOUND DECISIONS // Ute Mueller and Carl Winkworth, Partners, Duane Morris, London, UK

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

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••Does the seller need to make advance

tion of data (including routine/emer-

notifications or obtain consents? Will

gency backup and cloud storage) within

it breach confidentiality undertakings

its own organization and understand

given to either customers or the buyer?

the changes required, including timing and cost?

Ute Mueller

Due Diligence: ••Is the data secure? Have the parties

laws while the changes are implemented?

agreed to data room rules? Will they per-

••Does the buyer need further regulatory

mit the seller to remain compliant with

approvals, and can it actually operate

its statutory and contractual obliga-

the business in the meantime?

tions? Are the data security procedures of the buyer and its advisers adequate?

Carl Winkworth

••Will the buyer breach data protection

••Does any legacy data need to be purged from the seller’s systems? //

••Wherever possible, has all personal data been made anonymous prior to

Ute Mueller is a partner in the London office

disclosure?

of Duane Morris. She advises businesses

••Have all necessary consents and ap-

and entrepreneurs on complex domestic and

provals been obtained? It should not

cross-border investment structures, mergers,

be assumed that previous consents are

acquisitions, MBOs, MBIs and joint ventures.

valid, as it is unlikely they were given in anticipation of a sale of the business.

Carl Winkworth is a partner in the London of-

••Is the seller compliant throughout the

fice of Duane Morris. He focuses his practice

transaction? This is as important to the

on legal issues surrounding credit structures

buyer as it is to the seller, as the liability

and credit risks in the fixed-income markets,

for any compliance failures can travel

advising clients on complex cross-border

with the business (particularly in the

investment structures (including primary, sec-

case of a share purchase).

ondary and special-situation investments).

Post-Completion: ••Does the buyer have a strategy to integrate the seller’s data into its own systems?

••Does the buyer have a clear understanding of the relevant data flows and loca-

THE PORTFOLIO MID-MARKET TRENDS // John Sanchez, Partner, The FPA Group, in partnership with DHG

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

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The Lower Middle Market: How It Evolved, and Why Advisers Matter

A

The lower middle market remains an active source of deals.

t InterGrowth 2016, a panel of M&A experts covered an array of lower middle-market topics. Scott Linch, managing partner of DHG Private Equity & Transaction Advisory, led the discussion with Jay Jester, managing director at Audax Group; Ramsey Goodrich, managing director at Carter Morse & Mathias; Mark Hollis, partner at Centerfield Capital Partners; and Paul Gajer, partner at Dentons US LLP. Their insights are highlighted below.

More Participants Enter the Ring

nies, are making direct loans and finding

In the late ‘70s and early ‘80s, only a dozen

ways to push debt multiples higher.

private equity groups existed. Now there are thousands, and they must compete

The Value of Trusted Advisers

with fundless sponsors, family offices

Relationships have always been a corner-

and high net worth individuals for buy-

stone of M&A transactions. As markets

out transactions between $25 million and

have become more sophisticated and com-

$100 million. In the last 10 years, the lower

petitive, the importance of trusted advisers

middle market has attracted more capital,

has only increased. This is especially true

along with increased professionalism.

for LMM transactions that are more nu-

Unlike the core or upper middle mar-

anced and involve smaller companies. The

ket, the LMM is generally insulated from

quality of business relationships and the

megatrends—its small, regional busi-

value of trusted advisers will always play a

nesses have less urgency to sell based on

decisive role for this segment of the market.

market dynamics. The LMM has remained

Business owners anticipating an exit

active and garnered attention because of

should connect with a trusted adviser and

the healthy lending environment, which

consider a quality of earnings report long

has seen more active participants during

before they start the sale process. Sell-side

the last five years. New credit participants,

due diligence provides a great opportunity

such as regional and national banks, credit

to dramatically reduce the chances of a

funds, BDCs, SBICs and insurance compa-

transaction going south. Take time to prop-

THE PORTFOLIO MID-MARKET TRENDS // John Sanchez, Partner, The FPA Group, in partnership with DHG

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

erly plan the anticipated sale, so advisers

At InterGrowth, the pressing question

can perform a thorough analysis of every

was whether 2016 LMM M&A will stay

relevant business aspect.

strong in the face of global headwinds, a presidential election and larger private

John Sanchez

An Upbeat Beginning— but Can It Last?

equity firms continuing to move down

The LMM had a strong start in 2016, with

record deals, all panelists agreed that mar-

deal volume and deal value both up. Nearly

ket conditions were stabilizing in the midst

$12 billion was invested in deals in the first

of the fourth year of a seller’s market. Al-

quarter of this year, an increase of more

though summertime deals typically define

than 70 percent compared to the fourth

the year, the story for 2016 is likely “more

quarter of 2015. That was more capital in-

of the same,” and the prevailing sentiment

vested than any quarter since the Q1 2008.

about LMMs was optimistic. //

market. While the first quarter of 2016 saw

The number of deals during the first quarter of 2016 was 189, a 14 percent increase in

John Sanchez is the founder of the FPA

deal volume compared to the first quarter

Group. He has more than 20 years of experi-

of 2015. Traditional buyers and new en-

ence in communication skills training, ac-

trants still show strong demand for quality

counting and finance.

small-to-lower middle-market companies ($2 million to $10 million of EBITDA).

THE PORTFOLIO MID-MARKET TRENDS // Richard A. Martin, Jr. , Senior Director, Merrill Corp.

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

Entertainment and Media M&A May Be Down—but Certainly Not Out

A

s widely reported by the mainstream press, worldwide M&A activity has slowed significantly in 2016. While no sector is immune, including entertainment and media, there are positive indications that there is momentum on the horizon.

Forecast and Outlook

The media and entertainment sector may be poised for a pickup.

But June brought a big M&A surprise:

PricewaterhouseCoopers recently released

Microsoft announced plans to acquire

its annual Global Entertainment and Me-

LinkedIn for $26.2 billion. It would be

dia Outlook 2016–2020, a comprehensive

Microsoft’s largest acquisition ever, eclips-

five-year view of international consumer

ing the company’s $8.5 billion purchase of

spending and advertising revenues. Al-

Skype. As news continues to emerge, many

though M&A activity stagnated in recent

stakeholders patiently wait to see how the

months, the outlook forecasts U.S. E&M

questions surround the companies’ ability

spending to reach $720 billion by 2020, up

to integrate their services for consumers’

more than 19 percent from 2015. The re-

benefit, but one thing is for sure: This ac-

port also suggests that E&M worldwide

quisition marks Microsoft’s re-emergence

revenues could rise at a compound annual

in the social media and mobile sectors.

growth rate of 4.4 percent from 2015 to

Rather than targeting general consum-

2020, reaching $2.1 trillion.

ers, it will allow Microsoft to maintain a stronghold on the lives of digital workers.

One Deal Closes While Others Flirt, a Huge Surprise Emerges

Cross-Border Collaboration

Although the future looks promising, near-

To really grow, E&M companies must look

term challenges remain for both compa-

beyond domestic markets. For example,

nies and investors. That’s reflected by the

China is expected to surpass U.S. box office

on-again, off-again potential merger of

revenue by 2017. It would be the first time

Starz and Lionsgate.

the U.S. has not held that top spot. For this reason, Hollywood has begun to strengthen ties with China. This year, California-

THE PORTFOLIO MID-MARKET TRENDS // Richard A. Martin, Jr. , Senior Director, Merrill Corp.

BY THE NUMBERS

SOUND DECISIONS

MID-MARKET TRENDS

TAP BUTTONS TO NAVIGATE COLUMNS

Richard A. Martin, Jr.

based East West Bank (with assets totaling

The complexity of the E&M sector

$33.1 billion) helped finalize Beijing-based

yields tremendous opportunities to sup-

Perfect World Pictures’ $250 million invest-

port survival, growth, globalization and

ment in a slate of Universal movies. Addi-

more. As we will see in the coming months

tionally, the bank’s CEO reportedly helped

and years, no two deals will look alike, but

facilitate the Chinese studio Huayi Broth-

they will share the same goal: Supply con-

ers’ 2015 deal to produce at least 18 films

sumers with a bounty of content, services

with STX Entertainment, a U.S. studio.

and experiences that they have come to

This agreement helps Hollywood secure

know and expect. //

market access in China, but also acts as a vehicle for co-investment in local produc-

Richard A. Martin, Jr. is a senior director at

tion. Expect to see additional deals perme-

Merrill Corp., responsible for Merrill DataSite’s

ate this market segment.

global marketing group. Nearly two decades of marketing experience working and residing

Loss Leads to Opportunity

in the United States, the United Kingdom and

In the E&M sector, M&A is also about sur-

Europe has developed Martin’s understanding

vival. A recent example is Gawker Media,

of disparate corporate cultures and the global

which received a $140 judgment after los-

financial industry, evidenced by a successful

ing its legal battle with Hulk Hogan (who

record of growing businesses.

had his legal fees paid by billionaire PayPal co-founder Peter Thiel). The company filed for Chapter 11 in June and planned to conduct a July 29 sale by auction. The conglomerate’s mediabrands include Jezebel, Deadpan and Gizmodo—this is a case where one company’s losses could be several media companies’ gain.

P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .ÂŽ ACG

Global

network,

Partners

providing

help

valuable

expand

your

connections

middle-market with

corporate

clients and a consistent source of deals for capital providers.

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THE LADDER ACG MEMBERS ON THE MOVE

Lisa Stensgard

Lisa Stensgard joined BDO LLP,

Gavin Fielden was promoted

a U.S. professional services firm

to managing director at TriVista,

providing assurance, tax, advi-

a global management consult-

sory and consulting services, as

ing firm. Fielden joined the firm

director of business develop-

in early 2015 as vice president.

ment. Stensgard has more than

Gavin Fielden

Gavin brings more than 25

a decade of experience as a di-

years of experience in corporate

rector of business development

strategy, operations, general

at companies like CBIZ, Duff &

management, manufacturing,

Phelps, Jones, Hill, McFarland &

product management, business

Ellis, and Brusniak Blackwell.

development and leadership. In his previous position at Johnson

Lesley J. Mattos was brought

Electric, he led cross-functional

on board at City National Bank’s

development teams based in the

Commercial Banking Services

United States, Europe, and Asia.

Group as a senior relationship Lesley J. Mattos

manager. Her focus is on provid-

Ari Fuchs of The DAK Group,

ing customized financial solu-

a New Jersey middle-market

tions to middle-market com-

investment banking firm, was

mercial and industrial companies

promoted to director at the firm’s

with revenue over $20 million in

headquarters office in Rochelle

San Francisco to the mid-Penin-

Ari Fuchs

Park. With more than a decade

sula. Mattos previously worked

of experience as a corporate

at BBVA Compass Bank and

finance professional, Fuchs has

Bank of the West, as well found-

been involved in dozens of sales,

ing two companies, Bottoms Up

divestitures, private placements

Inc., and Adesso Albums Inc.

and recapitalization transactions for family and founder-owned businesses in industries such as manufacturing, transportation, distribution, consumer, food and technology. Previously, Fuchs was an investment banker in the New York office of Duff & Phelps.

THE LADDER ACG MEMBERS ON THE MOVE

Joseph Upson

Joseph Upson joined Loeb,

SMS Assist, a mobile and cloud-

a provider of high quality used

based multisite property man-

processing and packaging ma-

agement company, announced it

chinery as the southeast region

has raised $150 million in series

business development officer.

D funding from Goldman Sachs

Upson will focus on expanding

Investment Partners. After re-

the company’s equipment-based

ceiving a venture investment

lending portfolio, appraisal ser-

from Pritzker Group in 2011 and

vices, off-lease remarketing ser-

2013, SMS Assist experienced

vices and auction services. His

rapid growth in revenue, profit-

decades of experience includes

ability and operating scale. With

positions with Heritage Global

an additional investment from

Capital, Nations Equipment Fi-

Insight Venture Partners in May

nance, DeNova Capital, LLC, and

2015, SMS Assist continued to

Textron Financial to name a few.

develop its technology and enter new markets, launching a new

Genstar Capital, a leading mid-

integrated platform, “One by

dle-market private equity firm

SMS Assist,” and officially enter-

focused on investments in tar-

ing the single family residential

geted segments of the software,

market earlier in 2015.

industrial technology, financial services and health-care industries, announced the acquisition of the Operational Excellence & Risk Management business of business information provider IHS Inc. OERM, which will be headquartered in Chicago, provides a robust portfolio of software-driven solutions that enable companies to manage and optimize their environmental, health, safety and sustainability processes.

To submit your promotions, job changes and other accomplishments, please send details and a high-resolution color photo to Editor Deborah Cohen at dcohen@acg.org.

IT’S THE SMALL THINGS ENTERTAINMENT & MEDIA TRENDS // There’s No Business Like Show Business

1

(DON’T) QUIT PLAYIN’ GAMES WITH ME

4

The global games market will generate $99.6 billion in revenue in 2016, up 8.5% from 2015. For the first time, mobile gaming will take a larger share than PC with $36.9 billion, up 21.3%.

2

Investment giant BlackRock entered the music business in 2015, providing $5 million to $20 million of structured investments for artists through newly formed Alignment Artist Capital.

DOES THIS PLAYSTATION MAKE ME LOOK FAT?

5

PE HAS AMASSED QUITE THE ENTOURAGE

6

CROUCHING TIGER, NOT-SOHIDDEN MOVIE POWERHOUSE

China may soon have the world’s largest film audience–-some experts estimate that may happen by 2020. The media and entertainment industry is currently worth $180 billion in China and growing.

Gaming is no longer a male dominated area.

Of the 40% of Americans who own a video game console, 42% are women and only 37% are men.

3

MUSIC BIZ IS SOLID AS A BLACKROCK

Media mogul Ari Emanuel turned WMEIMG into a leader in sports, entertainment and marketing, with an assist from Silver Lake. The private equity group backed his acquisition of IMG in 2014 with $2.4 billion in capital.

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

NOTEBOOK COMPUTERS TAKE THE VICTORY LAP(TOP) ON TV VIEWING

Laptops have surpassed internet-connected TVs as the primary devices used to view online television among U.S. digital video viewers. According to a survey, 58% watch on their laptops compared to 47% on TVs.

THE LEADERSHIP ACG DIRECTORS ACG BOARD OF DIRECTORS //

CHAPTER REPRESENTATIVE DIRECTORS //

DIRECTORS AT LARGE //

Chairman Jason Brown* Victory Park Capital ACG Los Angles Term expires 8/31/2017

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

Jason Byrd Charter Capital Partners ACG Western Michigan Term expires 8/31/2017

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

Michael DiPiano New Spring Capital ACG Philadelphia Term expires 8/31/2019

Steven Castino Vestal & Wiler ACG Orlando Term expires 8/31/2018

Rick Gebert Grant Thornton ACG Atlanta Term expires 8/31/2019

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

Mark Hollis Centerfield Capital Partners ACG Indiana Term expires 8/31/2019

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

John Jester Audax Group ACG Boston Term expires 8/31/2018

Aric Hassel BB&T ACG Cincinnati Term expires 8/31/2018

Scott Linch Dixon Hughes Goodman LLP ACG Charlotte Term expires 8/31/2018

Karin Kovacic* Alcentra Capital ACG Connecticut Term expires 8/31/2018

Don Lipari RSM LLP ACG New York Term expires 8/31/2017

Mark Lehman Parsons Behle & Latimer ACG Utah Term expires 8/31/2018

Cassandra Mott Thompson & Knight LLP ACG Houston Term expires 8/31/2019

Walter O’Haire* Valuation Research Corporation ACG San Francisco Term expires 8/31/2017

Martin Okner SHM Corporate Navigators ACG New York Term expires 8/31/2018

Titus Schurink HPE Growth Capital ACG Holland Term expires 8/31/2018

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

Mitch Woolery Kutak Rock LLP ACG Kansas City Term expires 8/31/2018

Thomas Turmell TMT Capital Partners LLC ACG Chicago Term expires 8/31/2018

Vice Chairman John Dollison* Crutchfield Capital Corporation ACG Houston Term expires 8/31/2017 Immediate Past Chairman Richard Jaffe* Duane Morris LLP ACG Philadelphia Term expires 8/31/2017 Finance Chair Angie MacPhee* RGL Forensics ACG Denver Term expires 8/31/2017 Corporate Secretary Gretchen Perkins* Huron Capital Partners ACG Detroit Term expires 8/31/2017 President & Chief Executive Officer Gary A. LaBranche* ACG Global

*denotes member of Executive Committee

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P A R T N E R S I N D R I V I N G M I D D L E - M A R K E T G R O W T H .ÂŽ F r o m c o n s u l t a n t s t o C PA s a n d a h o s t o f o t h e r a d v i s e r s a n d specialists, ACG Global Partners guide the success of more than 90,000 professionals in the middle market worldwide.

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