ACG Cleveland & Crain's Special Issue 2019

PDF: Association for Corporate Growth 2019
 

Trends affecting the globalization of M&A

Connie A. Porter, associate Corporate & Securities Practice Group; Peter K. Shelton, partner Corporate & Securities Practice Group, Benesch. 

Ten years after the Great Recession of 2008, many businesses have turned to cross-border mergers and acquisitions and access to new geographic markets to enhance revenue growth during the steady, but generally slow recovery. When utilizing this growth strategy, businesses should consider certain key trends, including heightened attention to foreign investment by many governments, the changing landscape of trade alliances and greater concern with data protection.

Why private equity firms need content marketing

Brad Kostka, president of Roop & Co.

Content marketing involves consistently creating and sharing valuable information with the intention of stimulating interest in a brand and driving profitable customer action. Today, 92% of organizations view content as a business asset. Content marketing is especially beneficial to private equity firms since it supports fundraising and deal sourcing.

Strategies for preparing a business for sale

Stewart Kohl, co-CEO, The Riverside Co.

The Riverside Co. has invested in more than 580 companies since 1988. We understand what a good sales process looks like, and how business owners can extract the most value when looking to divest.

Bargain shopping: navigating the purchase of a distressed business

Christal Contini, member and co-chair of the Mergers and Acquisitions Practice Group; Michael Kaczka, Business Restructuring Services Department at McDonald Hopkins LLC.

All business owners like a good bargain, especially when that bargain might allow for the expansion of a product line or the elimination of a competitor. A business experiencing financial difficulty (a “distressed” company) is often a great target for purchasers to acquire a business or its assets at a discounted price. While many are loath even to dip a toe into the murky waters of distressed deals for fear of unknown liabilities, others jump in because, if done right, acquiring the assets of a complementary or competing business that is experiencing financial difficulty can yield a significant return for only a modest price.

Stifling debate at board meetings can destroy value at your portfolio company

Christopher J. Hewitt and Jayne E. Juvan, partners and co-leaders of the M&A practice at Tucker Ellis.

In order to achieve high-performing results, portfolio companies of venture capital and private equity firms need well-functioning boards that afford room for individuality, debate and discussion. Theranos, the now largely discredited Silicon Valley startup that initially gained a lot of buzz for its revolutionary blood-testing technology, serves as a cautionary tale about how a dysfunctional board destroys value. The company recently announced that it is closing its doors, and investors have lost significant capital.

M&A commercial property considerations

Diana C. Whisenant, executive managing director at Hanna Commercial.

As real estate asset managers, our clients often ask us to describe some of the most important things to consider when acquiring real estate in an M&A transaction. What it essentially comes down to is having complete and accurate data, documentation and some background information on the physical space and costs. Once this is in hand, you can effectively plan for a well-strategized implementation.

Crossing the dreaded revenue bridge

Andrew Male, director of Western Reserve Partners, a division of Citizens Capital Markets Inc.

High-growth companies aspiring to raise institutional capital must be thoroughly prepared to articulate to potential investors how their strategic initiatives have driven, and will continue to drive, the company’s revenue growth. That story is best told through an M&A analytical tool called a revenue bridge.

Understanding the capital stack in an M&A transaction

Michael D. Makofsky, principal Mergers & Acquisitions, Banking & Finance, and Business & Corporate practice; Joshua G. Berggrun, associate in the Business & Corporate, Mergers & Acquisitions, and Real Estate practice at McCarthy Lebit.

In any M&A deal, it is imperative that both sellers and buyers understand the different layers of financing, or capital stack, that can go into funding an acquisition.

Give that pig a bath before you take it to market

Scott McRill, shareholder, Clark Schaefer Hackett.

Don’t get me wrong — I’m not saying your business is a pig. I’d never say that; I know it’s your baby. But we’ve all heard the expression “putting lipstick on a pig.” It just doesn’t work. Unfortunately, many sellers do just that, shortcutting the preparation process, relying on the perceived “country club” value of their business and rushing to market. Instead, a seller should clean up and perform due diligence to better understand the true value of the business.

Synchronize your deal strategy

Matt Stencil, senior client partner, Korn Ferry.

In a year of many hot breaking business trends, it may well be the hottest of all: In just three months, the world’s corporate leaders struck $1.2 trillion worth of deals, the fastest start to a year ever. Even the banking sector, which hasn’t had much activity for most of a decade, had 19 announced deals, and analysts believe that merger mania is only just getting started, thanks to higher U.S. interest rates and potentially looser regulations.

Developing a buy-side strategy

Michael Shaw, partner and managing director, Copper Run.

Interested acquirers fall short of acquisition growth goals due to several factors: lack of consistent outreach, unpolished communication documents and unorganized or lengthy processes.

The buyer’s dilemma in determining valuation and earnout

Benjamin M. Cooke, Esq., attorney, Wickens Herzer Panza.

Buyers and sellers value businesses differently, but most businesses are valued on a cash-free, debt-free basis prior to any sale transaction. In the end, however, a business is worth what a willing buyer and a willing seller agree it is worth.

Why I loathe materiality scrapes (unless I’m representing the buyer)

Dominic A. DiPuccio, Esq., partner and chair, Mergers and Acquisitions Group at Taft Stettinius & Hollister LLP.

Buyers’ lawyers increasingly are getting more successful in adding so-called “materiality scrape” provisions to acquisition agreements. As seller’s counsel, this trend frustrates me. I find them awkward and risky. I push hard to resist them — not on philosophical grounds, but on grounds of improper agreement construction.

Steps to help initiate a seamless and profitable sale

Brent M. Pietrafese and Lydia E. Warkentin, Corporate and Capital Markets Practice Group at Calfee, Halter, Griswold LLP.

Selling a business can be a long and arduous process. However, sellers can engage in several preemptive measures to reduce the chance of future complications and, most importantly, downward price adjustments. There are three preliminary steps for sellers to take to ensure the transaction is as painless, and profitable, as possible.

Protecting interests in a heated market

Jeffrey J. Schwab, senior vice president of Private Equity Services at Oswald Cos.

Following on the heels of 2017’s record-setting financials, mergers and acquisition activity has continued to accelerate in 2018, all while competition for deals continues to be very intense.

The buy-side evaluation of net working capital

Steve Swann, partner Transaction Advisory Services Group at BMF.

In a business acquisition, the buyer should receive sufficient net working capital, or (NWC), to operate the business in its ordinary course. The assessment and negotiation of NWC is important; however, it can be challenging due to numerous factors. For example, is the seller experiencing rapid growth? Are there changes in payment terms with key customers or vendors? Are there issues with inventory costing practices?

Deal or no deal? Protecting assets and enhancing value in M&A deals

Jay Moroscak, senior vice president, Aon.

Insurance solutions are often the preferred means to protect against various risks involved in M&A deals. These insurance programs are eclipsing traditional protections involving escrowed funds, indemnifications, clawback provisions and other contractual measures.

How blockchain could upend M&A and other deals

Brian Kelly, deals partner; Brad Thompson, M&A tax partner PwC.

Momentum around blockchain is growing. Ohio recently joined a group of U.S. states enacting legislation that recognizes data stored and transacted on blockchain. And last month at Blockland in Cleveland, more than 1,500 attendees, 150 guest speakers and 21 industry representatives gathered for the inaugural conference focused on bringing real-world business solutions using blockchain.

Stepping into mom and dad’s shoes

Christopher P. Reuscher, shareholder; Lindsie A. Everett, associate, Roetzel.

Closely-held, family-owned businesses have qualities and histories that are unique and can be attributed to the dynamics of each family. The owner(s) of these businesses take pride in establishing a legacy in their family’s name. Because having a family-owned business means so much to the family that established the business, it comes as no surprise that eventually the inevitable question on everyone’s mind becomes: “Who is going to take over?”

PDF: Association for Corporate Growth 2018

Cleveland businesses should heed the wealth of M&A opportunity

Brian Kelly, local deals partner, and Alex Brown, deal strategy principal, PwC
For many Cleveland-area businesses, the current business climate is positive. The equity markets have been torrid, with the S&P 500 increasing 23% over the last 12 months, to its highest level. Seasonally adjusted unemployment rate is just 4.1%, interest rates are low and, according to PwC’s CEO Survey, 55% of U.S. CEOs are planning on acquisitions in the next 12 months.

Will blockchain change the world?

Sean T. Peppard, partner, Corporate & Securities Practice Group, Benesch
The fanfare around blockchain has reached epic levels, with publications like Forbes and Fortune predicting that blockchain will change the world. While such headlines are meant to grab attention and arguably exaggerate coming changes, a recent report by the World Economic Forum is predicting that by 2025, around 10% of global GDP will be built on blockchain or blockchain-related technology.

Key questions to answer during due diligence

Mark B. Bober, partner and practice leader in Transaction Advisory Services, Bober Markey Fedorovich
The M&A market remains extremely competitive, and buyer due diligence is more critical than ever. Sellers often seek valuations based upon projected forward earnings and pro-forma adjustments that may not reflect the actual results of operations, which require thorough diligence.

Early preparation and team-building is essential for successful acquisitions

John McGuire, partner, Calfee, Halter & Griswold LLP
Practitioners of transactional work generally agree that we are in a persistent sellers’ market. Pricing multiples remain high, sometimes breathtakingly so. Middle-market sellers are demanding that most, if not all, of their indemnity exposure be offloaded to representation and warranty insurance policies. What should potential buyers who do not regularly engage in acquisitions and dispositions do to be credible and competitive?

Momentum benefits sellers

Andrew K. Petryk, managing director and principal, Brown Gibbons Lang & Company
Aggressive buyers. Hungry lenders. Robust valuations. These are themes we have seen repeated over the last few years and show no signs of abating. Liquidity and the quest for growth are continuing to drive the M&A market with an almost insatiable fervor.

Sidestep private equity’s potential landmines

David Kern and Jon Stefanik, partners, Business Practice Group, Buckingham, Doolittle & Burroughs LLC

At its core, an M&A transaction involving a private equity buyer or seller is no different than any other M&A transaction that involves all of the usual suspects: due diligence checklists, working capital adjustments, baskets, caps, survival periods, carve-outs … you name it. There are, however, several under-the-radar issues unique to deals involving private equity buyers or sellers which, without planning, can become potential problems.

Be strategic when evaluating path to a successful business transition

Scott McRill, shareholder, Private Equity and Transaction Advisory Services Practice, Clark Schaefer Hackett
As the baby boomer generation ages and the Gen Xers and millennials come of age and go off to do their own thing, many businesses owned by boomers are left without a natural successor. Many of these business owners are finding that their children and grandchildren do not want to take over the family business.

Mitigating risk in M&A transactions

Jacob B. Derenthal, partner, Corporate Transactions Practice Group, Walter | Haverfield
Participants in merger and acquisition transactions all tell you they intend to mitigate risk. But in a marketplace with aggressive timelines and competition, too often deals close without parties taking simple precautions.

Championship-caliber dealmakers understand the language of business

Christopher J. Hewitt, partner, M&A Group chair and Corporate Governance Group co-chair, and Jayne E. Juvan, partner, Private Equity Group chair and Corporate Governance Group co-chair, Tucker Ellis LLP
In the context of corporate transactions, making sure that attorneys on the deal team have the capacity to understand the language of business, or lingua negoti, is critical to accomplishing a client’s objectives. 

Managing risk and liabilities as global M&A grows

Jeff Schwab, senior vice president and director of Private Equity Services, Oswald Cos.
Thomson Reuters reported worldwide dealmaking grew 12% in the first quarter of 2017 over the same quarter in 2016, to $777.7 billion. The number of deals in the same time fell 9%. Fewer deals, with larger dollar amounts, result in increased pressure and risks that are more complex.

Indemnification in private M&A deals

Tony Kuhel, partner, Corporate Transactions & Securities Practice Group and vice chair, Cleveland office, Thompson Hine
In most M&A transactions involving a privately held target, the seller’s representations and warranties and its indemnification obligations are the most heavily negotiated provisions in the definitive agreement. While representation and warranty insurance has altered these negotiations when it is used, the fundamental purpose of representations and warranties and indemnification remains unchanged: allocating risk for unknown (and in some cases known) liabilities between the buyer and seller.

M&A for high-growth companies

Michael C. Shaw, partner, Copper Run
Acquisitions can elevate high-growth companies to new levels. Often, companies that can benefit the most from acquisitions are companies that have grown significantly at the cost of structural problems (such as a significant customer concentration). Implementing a regular internal M&A review will help high-growth companies stay ahead of the growth curve and find areas to improve. M&A isn’t just for the slow-growth consolidators.  

New revenue recognition standard could impact quality of earnings

Andrea Slabinski, senior manager, professional standards team, and Joseph Adams, partner, private equity team, Plante Moran
Whether buying or selling a portfolio company or planning a future exit, it is critical that private equity groups understand the new revenue recognition standard. The new model can affect the timing of when revenue is recorded, which could have surprising impacts on quality of earnings. Here’s what it means for your valuation models during due diligence.

Be wary of tempting offers

Charles Aquino, managing director, Western Reserve Partners
Perhaps you’ve spent a lifetime building your business, sacrificing personally for the betterment of your employees and company. Or maybe you are the caretaker of four generations of growth and sacrifice, and it’s your turn to preserve the family legacy.

Employee considerations in a transaction

Michael D. Makofsky, principal, Mergers & Acquisitions, Banking & Finance, and Business & Corporate practice areas, and Jack E. Moran, principal, Employment & Litigation practice areas, McCarthy, Lebit, Crystal & Liffman

Overcome hurdles, improve deal outcomes

Jay Moroscak, senior vice president, Cleveland office, Aon Risk Solutions
The dearth of desirable acquisition targets has created a highly competitive landscape in the M&A market. This competitive situation dictates that buyers be prepared with strategies and tools that facilitate potential transactions.

Market dynamics tilt deal favor toward seller

Albert D. Melchiorre, president, and Matthew M. Sweet, associate, MelCap Partners
The M&A markets are dynamic and constantly evolving. These trends continue to have implications for buyers and sellers. It is particularly important that business owners understand these trends to prepare themselves for a successful transaction.

Private equity continues to evolve

Stewart Kohl, co-CEO, The Riverside Co.
The Riverside Co. has seen a lot of change in private equity since our founding nearly 30 years ago. Part of that change has been seeing some of the things we did become much more common and even necessary for success in this increasingly competitive and challenging environment.

Don’t let due diligence deflect from the deal of a lifetime

Christal Contini, member and co-chair of the Mergers and Acquisitions Practice Group, and Emily Johnson, associate in the Healthcare and Data Privacy and Cybersecurity Practice groups, McDonald Hopkins LLC
For many small business owners, founders and management teams, selling their business is a once-in-a-lifetime transaction. Most have spent years focused on managing and growing their business — not on the task of selling. When it is time to sell, though, it is important to be prepared for the buyer’s due diligence investigation.

Making earnouts work

James D. Vail, managing partner, and James M. Gianfagna, associate, Schneider Smeltz Spieth Bell
In the sale of a business, an earnout entitles a seller to additional purchase price if the target business meets certain post-closing benchmarks. The benchmarks are usually based on the target’s financial performance — generally revenue, gross profit or EBITDA.

Enlist a buy-side adviser to gain the advantage

David Pease, vice president, Pease Acquisition Advisors
What does the typical company do once it decides that growth through acquisition is in its strategic plan? Of the various ways to find acquisition opportunities, there are two main methods to source and complete a deal.