ACG Denver
- Dorothy Donnelly named ACG 2011 Outstanding Member of the Year
- Eide Bailly and Wipfli announce plans to merge
- ACG Special Section: 10th Annual Rocky Mountain Corporate Growth Conference
- Road to new revenue standards rocky but convergence still progressing
- Eide Bailly expands its Boulder practice
- Schuchat, Herzog & Brenman Serves as Counsel on $30.5 Million ADA-ES Common Stock Offering
- Barry Levine joins Hein & Associates
Dorothy Donnelly named ACG 2011 Outstanding Member of the Year
Dorothy Donnelly was named the Denver Chapter of the Association For Corporate Growth’s 2011 Outstanding Member of the Year.
Donnelly, national director of marketing for Denver-based Hein & Associates, served as conference chair of the Rocky Mountain Corporate Growth Conference, which generated more revenue and attendance than any of the previous nine conferences of the chapter. She helped recruit four major sponsors during that time. A member for over five years of ACG, she served as the conference marketing chair in 2010 and still is chair of the chapter’s marketing committee.
“It is very gratifying to be recognized for my efforts,” Donnelly said. “I didn’t expect it. I was just doing my best, trying to fulfill the commitments I made to the association and my employer. Then, a big old pat on the back comes along with an award which tells me ‘you did good!’ It was a thrilling moment for me.”
A graduate of Ithaca College, Donnelly previously operated Donnelly Consulting Group, was central region marketing director at Grant Thornton LLP; marketing senior manager at Deloitte and marketing director at Hancock Rothert & Bunshoft.
“ACG Denver has been extremely valuable to me personally and professionally,” Donnelly added. “It’s a great place to meet people who are passionate about our business community, and who are willing to work together to make a difference. I feel fortunate to be a part of this outstanding group of business leaders.”
ACG-Denver membership is open to middle market business executives, investors and service providers involved with corporate growth, divestitures and M&A activities. More information is available at http://www.acg.org/denver/default.aspx.
Submitted by Keith DuBay, BlueCoast Media Group.
Eide Bailly and Wipfli announce plans to merge
Eide Bailly LLP and Wipfli LLP plan to merge their professional practices. Pending regulatory approval, the two firms will officially combine on June 1, 2012.
The combined firm will be named EB Wipfli LLP, and will rank among the nation’s top 15 accounting firms, with annual revenue of more than $314 million. Combined, the new firm will serve more than 70,000 clients from 41 offices across the west-central United States and two offices in India. EB Wipfli will provide a comprehensive range of audit, tax, accounting, consulting, and professional advisory services to public and private companies across the country and internationally.
In a joint statement, Jerry Topp, Managing Partner/CEO of Eide Bailly, and Rick Dreher, Managing Partner/CEO of Wipfli, said, “Together, our firms will have the depth of resources necessary to help our clients meet their future challenges and leverage future opportunities. We are excited about what this merger will mean for our clients our associates and our partners.”
Topp, who will serve as Chairman of the merged firm, commented, “We are proud to join forces with a firm of similar size, scope, culture and service philosophy. Eide Bailly and Wipfli are both committed to offering our clients top-quality service and customized solutions to help them thrive, and to providing our staff with a positive culture and exciting career opportunities.”
Dreher, who will serve as the Managing Partner/CEO of the merged firm, said, “We have forged mutual respect and a strong relationship with Eide Bailly over the years, and feel this is an outstanding opportunity to combine our collective talents and strengths to enhance the value we bring to our clients, associates and the communities we serve.”
The new firm will be comprised of 2,327 associates, including 301 partners. Its national wealth management practice will rank as one of the largest in the accounting profession with nearly $3 billion in assets under management.
ACG Special Section: 10th Annual Rocky Mountain Corporate Growth Conference
The Power of Perseverance
“Leading resilient growth” is the theme for the 10th edition of ACG Rocky Mountain Corporate Growth Conference
By Norm Thiele
“I’m convinced that about half of what separates the successful entrepreneurs from the nonsuccessful ones is pure perseverance.” - Steve Jobs.
Steve Jobs was right. Today’s business leaders must find ways to point their companies in the direction of profitability and growth despite an economic storm that continues to buffet business. And doing so requires smart decisions and the perseverance to see them through.
Company chiefs face pressures unforeseen in generations past; pressures that require a new path forward, paved with ingenuity, fortitude and resilience. Revitalizing core competencies and accessing new avenues of growth are vital to thriving in a shifting, dynamic global economy.
At no other time in business has sound preparation and smart strategy been more important. Careful planning, vision - and a healthy dose of fortitude- are essential for business growth, whether you’re an entrepreneur ready to launch or an established business leader looking for an exit strategy.
The Association for Corporate Growth Denver is the premier business association in the Rocky Mountain region offering access to skilled professionals and critical resources to drive middle-market growth. This year marks the 10th anniversary of the ACG Rocky Mountain Corporate Growth Conference, which I am honored to chair. This year’s conference theme, “Leading Resilient Growth,” will celebrate how successful business leaders are seizing new opportunities and prospering despite continuing economic ups and downs.
Colorado stands as one of the nation’s leaders in economic growth - our business leaders are at the forefront of new ideas and innovation that is driving business forward. We have much to learn from our peers in the business community in the region, and conference attendees will be exposed to an array of contemporary business thought leadership and best practices including developing and leading high performance cultures, international growth strategies, trends in M&A from the point of view of both strategic and financial buyers, and best practices in preparing for an exit.
The conference also offers extraordinary networking and knowledge-sharing opportunities for top executives and dealmakers from the region and around the nation. Highlights of the conference include:
Keynote: Carly Fiorina
It’s an honor to announce Carly Fiorina as the ACG conference keynote speaker. Her record of hard work and success includes more than two decades at AT&T and Lucent Technologies, where she led the largest-of-its-time IPO of Lucent and became president of its largest business. In 1998, she was first named Fortune magazine’s most powerful female American executive and continued to top this list throughout her tenure at HP. Carly has led profound change and transition within her companies, and she will share her insights on how her leadership drove HP, as well as AT&T and Lucent, to capitalize on opportunities and always stay adaptable.
Conference panel sessions
The conference will highlight six panel sessions where knowledgeable moderators will facilitate discussions with an unmatched slate of successful Colorado business leaders from a variety of industries. These accomplished business leaders and dealmakers have grown companies that are fluid, flexible and fast, and each will share proven strategies for long-term growth and durability. Please make sure to review our conference agenda for venues and times of our “can’t miss” panel discussions.
Capital Connection
ACG Denver Capital Connections is the most popular corporate deal-making event in the Rocky Mountain region. Here, private equity groups, intermediaries and capital providers, corporate executives and advisers participate in robust networking and information exchanges. This informal, friendly and fast-paced event is the best place to connect with the resources needed to grow your business, integrate into a great deal, and help achieve your growth aspirations.
Networking and Luncheon Events
Conference attendees will have more time than ever to make vital business connections. Breakfasts both mornings are intentionally designed as opportunities for conference attendees to meet other attendees, or to network with contacts new and old, and forge enduring relationships that enable business. Recognizing the essential nature of relationships to successful business, ACG Ambassadors will be on hand throughout the conference to facilitate personalized introductions with the people most important to you.
And we hope all attendees will join us to celebrate the successes of some of Colorado’s most innovative businesses at our premier Corporate Growth Awards luncheon where ACG Denver honors outstanding Colorado companies in both large corporate and emerging business categories. Winners are selected based on key criteria including sustained top-line growth and profitability, leadership, innovation, social responsibility and community involvement.
I would like to thank the many people who make the annual ACG Rocky Mountain Corporate Growth Conference a huge success. Our conference sponsors are unwavering supporters of ACG Denver and provide the key resources in making our annual conference possible. The success of the event would also not be possible without the tremendous time and energy commitment from a large contingent of dedicated ACG volunteers. Please join me in thanking these supporters, and I look forward to seeing you at the conference. n
Norm Thiele is managing director of Emergent Global, ACG Denver board member, and chair for the 2012 Rocky Mountain Corporate Growth Conference.
Economy Expected to Grow Slow and Steady in 2012
By Eric Peterson
Doomsday might just have to wait. The Mayan calendar might end on Dec. 21, 2012, but most astute observers believe the coming year will bring Colorado’s economy more of the same sluggish growth it experienced in 2011.
For one, Patricia Silverstein, president of Littleton-based Development Research Partners and chief consulting economist to the Metro Denver Economic Development Corp. and the Denver Metro Chamber of Commerce, is neither bullish nor bearish on the state’s economic prospects for 2012.
“In general, our expectations are that 2012 is going to be similar to what we saw in 2011,” she says. In other words, expect economic growth in the lackluster ballpark of 1 percent.
Why can’t the economy get out of first gear? “There’s a lot of uncertainty as of yet,” Silverstein says. Despite more traction nationally, the specter of a eurozone collapse haunts markets worldwide, she says. “This is a really challenging time to be forecasting economic activity. It could tip either way.”
Colorado trades less with Europe than most other states, but that doesn’t make it immune to the Greek flu. “Colorado is very open to what is happening there because the U.S. is open to what is happening there,” Silverstein says. “We are operating in a global economy.”
Silverstein projects Colorado’s unemployment will remain high in 2012 but lower than the national rate. Standout sectors include health care, education, manufacturing and cleantech. “Health care has been amazing,” says Silverstein, citing demographics and medical tourism as drivers. “It has continued to grow for the last decade in spite of two recessionary periods.”
While manufacturing has exceeded Silverstein’s expectations, cleantech has been the shining star of the Colorado economy for the past two years. It was the only sector with positive employment growth in 2010, according to studies Silverstein conducted for the Denver EDC.
“The growth has been pretty phenomenal,” she says. Despite heavy competition from other states and countries, “We still maintain a competitive edge here in Colorado - but we need to be vigilant because this is an industry everybody wants.”
Also trending up is professional and business services, a good indicator of broader growth. “That tends to mean growth is happening in the overall economy,” Silverstein says.
Lagging sectors include government and construction, but Silverstein notes that multifamily residential construction has shown signs of life and looks relatively strong for 2012. With the Colorado population continuing to grow, things could change in a hurry, she adds.
“There are some folks who are worried how we’ll be able to react to a shift in the market. We are in a position that the market could switch very suddenly on us.” While this is not likely to happen in 2012, Silverstein says a construction rebound could happen as soon as 2013, adding, “The smart developers are getting their ducks in a row right now.”
Steve Riddle, managing partner at the Denver office of McGladrey, a national tax and business consulting firm with 70 offices nationwide, echoes Silverstein with his broad forecast for the state. “I believe we are going to outperform the national economy in certain pockets of growth,” he says, identifying mining and logging as particularly buoyant sectors.
“Everything is happening up north,” he says, citing the oil-rich Niobrara Shale Formation that’s been recently tapped in northeastern Colorado and eastern Wyoming. “Employment is up, and housing follows employment.”
Outside venture capital should tick up in 2012, Riddle adds. “They’re looking to put some money to work. A lot of them are geographically agnostic.” Like Silverstein, Riddle is bullish on Colorado’s prospects in cleantech, citing cultural factors as well as the state’s abundant sun, wind and open space. He also does not forecast a banner year for real estate as companies aim to reduce their footprint and associated costs by favoring buildings constructed to Leadership in Energy and Environmental Design (LEED) standards. “I believe we’re going to see home prices stay flat and sales stay flat,” he says. “I just don’t see construction coming back this year.”
Riddle says clients “are cautiously optimistic, but in an election year, a candidate’s tax positions can have a significant impact on hiring. There’s a wait-and-see attitude out there.” Employers are willing to let employees work flexible schedules and telecommute but don’t expect to make many new hires this year, he adds.
On the bright side, these hiring doldrums can’t last forever. “They are doing more with less,” Riddle says. “We all are. But ultimately, that’s not a sustainable situation.”
Corporate Growth Award Winner: Schomp Automotive
Fourth-generation dealership started as an Englewood gas station
By David Lewis
You would have to be a very recent Colorado transplant not to have heard of Schomp Automotive.
First off, the company is a fourth-generation family business this year celebrating its 70th anniversary, a phenomenon about as rare as a 1954 DeSoto Coupe. Second, the voice of company president Lisa Schomp, media pitchperson for the company, is as ubiquitous as the ‘54 DeSoto is unusual.
Yet while the media image of Schomp is all Lisa, the force behind the scenes these days for the most part is 28-year-old Aaron Wallace, eldest child of Lisa Schomp and longtime General Manager Mark Wallace.
Business is usually a team sport, and the younger Wallace cheerfully describes his company’s success as a combination of genes, hard work, family togetherness and team spirit.
Those qualities, plus long-term profitability, combined to make Schomp Automotive this year’s winner of the Association for Corporate Growth-Denver Corporate Growth Award.
A little history - a lot of history, really - is in order first.
Lisa Schomp’s maternal grandfather, Roy Weaver, started Schomp Automotive in 1941 as a modest service station in Englewood. Weaver displayed a couple of Oldsmobiles for sale, named the gas station Arapahoe Motors, and the Schomp saga began.
After World War II, Weaver’s son-in-law, Ralph Schomp, joined the company, and in 1955 bought it and renamed it Ralph Schomp Oldsmobile.
Schomp succeeded and grew, but it likely would not have continued as a family business if it had not been for the extraordinary gumption of Lisa Schomp.
You may recall that the automobile business in the olden days was an entirely male preserve. Lisa Schomp was first pegged as the company’s “coffee greeter girl,” then advanced to sales, then service. She eventually earned her father’s approval, and she and Mark Wallace took the company over upon Ralph Schomp’s death in 1988.
Their career since was highlighted by the 2008 opening of the company’s palatial $22 million BMW showroom in Highlands Ranch, the region’s biggest BMW dealership.
So it’s no great surprise that Aaron Wallace seems to have been born to run a vehicle dealership.
“I started with small summer jobs in eighth grade, but I’ve really been working full-time for Schomp since I finished college eight years ago,” he says. “I started stocking parts shelves. When the trucks came I was the guy who put the parts away, or brought them to the counter when someone needs one. From there I went to two summers in detail and window tint, and then became a lot tech,” shuttling vehicles around the dealership lot.
Wallace attended Northwood University in West Palm Beach, Fla., not a bad place to be. But he mainly marked time before he could get back to the family business. “I would not say I was the most excited student,” he said, laughing.
With that prologue, the post-university transition to dealership management seemed a natural.
“My mom was the third generation, and they got over a bunch of hurdles to get to three,” Aaron Wallace says. “They got over the hump. It would have been really easy for the third generation not to have happened, so in reality both my parents have made it easy on me. They had been through the hard part, and they wanted to give me the opportunity. They made it clear to everybody that that was what was going to happen, and then they got out of the way.”
Aaron Wallace doesn’t face a climb up a sheer cliff the way his mother did, but it does not follow that the car business is a cakewalk, especially not during the current economic uncertainty.
“From the time I started up until today, the business is pretty much completely different in terms of just the structure of customer flow, and how people shop for and buy cars - an immense amount of change,” he says. “I can’t even imagine what my parents had undergone.”
Today, Schomp Automotive is the umbrella organization for three dealerships: Schomp Honda, Schomp BMW, and Fay Myers Motorcycle World, an acquisition Schomp Automotive made in 2004.
Today, “I make all the decisions,” Aaron Wallace says. “All the business choices are my choices. At the end of the day the significant decisions have to do with employee issues, decisions on which direction we want to go on selling cars - if we want to sell 200 cars that month, or 300 cars that month, there’s a major difference on how to get there.”
Company plans include construction of a Honda dealership near its BMW store.
Looming in the background of every decision, however, is the increasing threat of getting crosswise with the government or the legal system.
“The hardest part is the unknown,” he says. “Anymore, it feels like you’re not worried about making the right choice. You know what the right choice is, but in this day and age you always have to question if you are allowed to make the right choice or not for your company. You have to decide whether some sort of government agency or a judge is going to think it is the right choice or not.” n
Emerging Company of the Year: Alpine Waste & Recycling
Denver business knew its niche from the outset: uncommon service
By David Lewis
Lots of people lately have accused businesspeople of being motivated by greed.
As far as Alpine Waste & Recycling CEO John Griffith is concerned, at least, they have the prime motivator all wrong.
“It’s funny because when people ask me that, I’ve always said that fear is the best motivator,” Griffith says.
Fear has followed Griffith throughout the decade-plus history of Alpine, from its earliest days as a business plan with zero funding to 2011 as a company with about $25 million in annual revenue.
Regardless of motivation, the ongoing successes of Alpine Waste earned it this year’s Association for Corporate Growth-Denver’s Emerging Company of the Year Award.
Nobody would blame Griffith for feeling anxiety over the launch of Alpine. The company began in 1999 when he learned he was due to be laid off by BFI Waste Services, a giant trash removal company that has since changed hands several times.
“When your bosses start writing you unsolicited letters of recommendation, that’s not a good sign,” he notes.
Griffith began by asking, “‘What else is there for me?’ I was about to lose my job, and I started telling everyone I was about to start this, and it got to the point where I would seem like a blowhard if I didn’t actually do it. I was a sales manager for BFI, and I knew how to sell the service, but I just didn’t know the back end. So I began playing with the numbers.”
The number that eventually launched Alpine’s stage one was $700,000, the amount of the private stock Griffith sold for his nascent business.
Not that this success let him off the hook.
“I was concerned I wouldn’t get it, but it took only a few weeks; it was a very easy sell. The angels, everybody was somebody I was familiar with, which was nice. That was nice and it’s not nice. If you fail, then you’re out of friends and family. But if you succeed, then you don’t have people breathing down your neck like you might if they were angel investors.”
Alpine gained a foothold in the waste disposal industry because of Griffith’s ability to hire, and then delegate, and his business’ ability to spot niches.
His first hires included Griffith’s brother-in-law, now-company CFO Alek Orloff, and Tom Reed, previously a BFI shop manager, now plant manager for Alpine’s Altogether Recycling division.
“Alek helped me at the start with the company P&L statements, the financials, and some of those pieces that are not my strong suit,” Griffith says. “And Tom was helping me price out trucks. He asked me what I was going to do for a driver. I thought I would just hire a BFI driver. At the time I just figured a trash truck was like a big Honda Civic - you just hop in and it goes. I didn’t realize how much maintenance is involved. I got really lucky because Tom said he wanted to work with me.”
The first significant niche, and still the company’s hallmark, had to do with exceeding service expectations.
“A lot of little companies try to start up and do what we’ve done, and the reason we’ve been successful and others haven’t is that we have found a niche. In any business you have to be the best at something,” Griffith says.
“When we started our company the niche was going to be the service end. I remembered people telling me that there was trash on the ground and asking (BFI), ‘Would you guys pick it up?’ I remember calling operations when I was a sales manager and asking them about it, and their response would be, ‘We’re not janitors, we’re drivers.’”
Training has had a lot do with winning that niche.
“When people think of a driver in our industry, it conjures up a vision of this kind of surly guy, unkempt and no sleeves maybe, and just an intimidating individual. We always have maintained a staff more like a FedEx driver, or a UPS driver, hats on forward, shirts tucked in, ‘Yes, sir, no ma’am,’ that sort of thing. We really emphasize that point with our people: When we leave your property it’s going to look better than when we drove in.”
Alpine has scored a 41 percent annual rate of growth through its first 11 years. This includes 2007, its “best year,” Griffith says, when annual sales rose more than 50 percent to about $9 million.
The company continues to set a yearly target of revenue growth of about $5 million yearly, Griffith says.
Meantime, managing Alpine has meant the expansion - by a factor of two-thirds - of its Altogether Recycling plant; the recent acquisition of Denver-based Waste Farmers, doubling the capacity of its most profitable new niche, composting; and the successful struggle to open the only privately held landfill in Colorado, the East Regional Landfill near Bennett.
“It’s been a very successful venture,” Griffith says. “The landfill ensures our long-term viability in this business.” n
A Stronger Economy and Deal Diversity Driving Private Equity And Venture Capital Growth
By David Lewis
Nobody in the private equity funding business is arranging a ticker-tape parade just yet, but investing in confetti futures may not be such a bad idea.
“Without patting ourselves on the back, we had a fantastic year last year, in 2011,” says Warren R. Henson, president and senior managing director of Denver-based investment banker Green Manning & Bunch. “We had a really fabulous year. The middle market, from $10 million to $250 million in this part of the country, was very active. Two-thirds of our companies were sold last year to strategic buyers. That means large Fortune 500 companies or foreign companies coming into Colorado and buying local businesses.”
Luckily, Henson keeps track of more than his own firm’s success, and the data Green Manning & Bunch compiled for private equity and venture capital investment in 2011 reflects a couple of important points.
First, the comeback of these investment sectors reflects an overall strengthening of the Colorado economy. Second, it reflects welcome diversification.
Last year, about 40 private equity transactions in the state amounted to about $866 million in investment; another nine deals worth $267 million were announced by year’s end but not completed.
(In order to express the size of 2011’s average private equity deal these figures exclude the largest private equity deal in Colorado by far last year, New York- and London-based Clayton, Dubilier & Rice’s $2.82 billion acquisition of Greenwood Village-based Emergency Medical Services Corp.)
As important as the sheer numbers is the diversity of the in-state industries represented. Energy, notably oil and gas, is ascendant. Mining also is represented. Health care is a strong target. So are construction, pharmaceuticals, software, insurance, biotech, chemicals and the hospitality industry.
These business sectors represent half of the state’s private equity funding story, the fundees, so to speak. The other half are the in-state funders, who like Green Manning & Bunch, appear to have come out the other end of the Great Recession without being too badly burned.
Like most of the Colorado-based companies funded by private equity investors last year, most of the private equity investors here focus on the middle market. That market is defined in a range from about $25 million (or less, as Henson noted) to $250 million, or even higher.
Private equity investors, as well as private debt investors, also vary their style and approach to the companies they acquire. None takes a purely hands-off approach, but some get more involved in the businesses they buy into than others.
David Kessenich, managing partner of Denver-based Excellere Partners, a $750 million fund, says his company strives to involve itself in the fulfillment of the entrepreneurs’ founding vision.
“We start pretty small and help entrepreneurs pursue their vision for building a much larger best-in-class company, so our businesses typically grow three fold to five fold in size over a three- to five-year period,” he says. “That’s with both organic growth and add-on acquisitions that meet their strategic objective.”
Excellere Partners was founded in 2006, right at the top of the market. The company’s portfolio, on an average weighted basis, grew organic revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) by about one-third, “Very significant revenue and EBITDA growth,” Kessenich notes.
How do they do it?
“It’s a combination of picking companies in great industry sectors that put the wind behind our backs, as well as supporting our management teams and building out a very scalable foundation to really capture the market opportunity that’s in front of them,” he says.
As an example, Kessenich offers Excellere’s first investment, MedExpress Urgent Care. The company, based in Morgantown, W.Va., had six urgent care centers in West Virginia and Pennsylvania.
“When we exited that business to Sequoia Capital, the company had grown almost nine-fold in size by every metric; it had 50 centers in West Virginia, Pennsylvania, Florida and Colorado,” he says.
The MedExpress Urgent Care value proposition can be summed up simply: Visits to standard emergency wards require a national average of four to 4½ hours; visits to a MedExpress facility take about 45 minutes from intake to triage to medical care and discharge.
Not all equity transactions take place in glamour sectors. One of Henson’s favorites was the November sale for an undisclosed amount of family-owned Fowler & Peth, a distributor of roofing and building supplies with yearly sales of about $60 million, to Peabody, Mass.-based Beacon Roofing Supply Inc.
In case you were wondering, the rumors are true, insiders say: Lack of capital is not a problem. Not only is there plenty of equity capital around from strategic buyers - companies looking for an acquisition as a fit with their existing operations - but debt capital is relatively plentiful as well.
“You’ve probably read about there being lots of cash on the balance sheets of strategic buyers,” Henson says. “In a lot of cases of strategic buyers there’s less risk in making an acquisition - in adding a customer base, giving more scale geographically, adding a product offering - than there is in us trying to do it ourselves. There’s also a lot of capital in the financial world.”
Much the same goes for debt financing. “We did a couple of debt financings last year in addition to these sell-side deals. Debt financing is readily available, so when private equity firms buy a company, just like when you buy a house, they would leverage that transaction, and financing is readily available in the middle markets. In the really large transactions, debt isn’t as readily available because there aren’t as many lenders to go to.”
Chris Wilson is founder and principal at Fortitude MB, which specializes in debt financing for mid-market transactions.
“Fortitude looks to make principal investments in alternative asset-based debt and special asset opportunities. That sounds complicated, but what we look for are opportunities to provide debt financing or structured debt financing - meaning a combination of debt and equity,” he says. “So we would be potential principal investors for companies in situations that can’t attract traditional financing - they don’t qualify for bank debt or have a very complicated situation that has some hair on it where you need someone to dig in and understand.”
Private debt financing, however, mirrors equity financing.
“Our requirements generally are emblematic of the market, which is that people who have capital are being much more selective and cautious on how and when they invest that capital,” Wilson says. “To some extent, the bar has gone up on quality. But maybe more importantly the checks and balances to verify that quality have also gone up.”
Defining the Essential Elements for Growth and Success
By Lisa Ryckman
Ayuda Management Corp. has grown 7,000 percent since 2007. ReadyTalk has more than 5,000 customers in 70 countries. Imperial Headwear, closing in on a century in business, cranks out 10,000 caps a day.
What’s their secret?
Ask the leaders of Colorado’s hottest companies for the five essential elements for growth and success, and you’ll probably get six.
Or seven. Or four.
At Ayuda, they talk about the “four D’s: desire to be the best; determination to succeed, even in the face of rejection; dedication to customers and employees; and daring to take risks to further our goals and dreams.”
Clearly, that’s been a winning formula for the 10-year-old company, a provider of services in general contracting/construction management, construction-defect repair, homeland defense consulting/security system design and installation, environmental consulting and staff augmentation.
Ask Ayuda co-owner Sonya Yungeberg, and she’ll tell you she puts trust-building at the top of her list.
“Build trust with your clients through frequent and relevant communication,” says Yungeberg, who serves as executive vice president and chief operating officer. “Be honest and do what you say you are going to do. Bend over backwards to finish what you started; the end of a project is as important as the start.”
Providing quality services and focusing on existing clients are two other key elements, Yungeberg says.
“Quality is defined by the client and their end goal. Listen to your clients and adapt your services to their needs. Boilerplate execution can lead to unhappy clients,” she says. “Focus as much or more attention on servicing existing clients than selling new work. Repeat business and referrals are always easier to get than new clients through cold marketing.”
CEO Dan King of ReadyTalk, an audio and Web conferencing provider ranked as one of the nation’s fastest-growing technology companies for five years running, looks at his product through the customer’s eyes.
“One essential element to our growth has been our consistent effort to gain clarity on how it is that we create value for our customers through our product and service offerings - what it is about our offerings that makes them unique and gives both customers and prospects a strong reason to spend their money with us?” he says.
Imperial CEO Doug Kelly agrees.
“You need to have a product or service that brings value and purpose to your consumer,” he says. “It’s a competitive environment, so your company must provide good service. It’s too easy to seek out alternatives.”
Kelly rounds out his list of essentials with a fair price for value received, meeting customer deadlines and embracing social networking and online sales opportunities.
“You need to be proactive with your accounts/customers with your communication,” he adds. “Be proactive - not reactive.”
Finding, nuturing and keeping talented employees ranks high on the list of key elements for Colorado companies experiencing both explosive growth and incredible success. At Rivet Software, a pioneering financial reporting services firm that grew 1,140 percent in one year, they talk about “The Rivet Mullet” - business in the front, party in the back - which encourages employees to work hard and gain inspiration from time off.
At Delta Dental of Colorado, which provides dental services for 1 million Coloradans, CEO Kate Paul talks about the team spirit and the staff’s dedication to the company mission. “People are connected to one another,” she says.
ReadyTalk’s King says his company is committed to creating an environment where the best can give their best. That commitment has earned the company recognition as a great place to work from ColoradoBiz magazine, Inc. magazine and Winning Workplaces.
“We are really focused on understanding people’s natural talents and how they will complement the manner in which we get our work done,” King says. “We are also really focused on creating and sustaining a culture that is built around employee engagement.
“One of the key questions we ask ourselves is, why would a highly talented individual want to come work here as opposed to any of the other companies in the area? And why should they stay?” he adds. “Getting the answer to that question right has a huge impact on our ability to continue to sustain profitable growth over the long term.”
At the Odell Brewing Co., the company has gone from the three Odells - Doug, his wife, Wynne; and his sister Corkie - working in a converted 1915 grain elevator to a 45,000-square-foot facility and 66 employees. Their people are the key to their success, Corkie Odell says, and they’re big on offering opportunity: Anyone in the company who wants to brew can take a crack at it through a pilot brewing system, which gives them a chance to create a beer and name it.
Ayuda’s Yungeberg also puts employee empowerment on her list of keys to growth and success - “Never hesitate to reward employees or end a relationship that is not mutually beneficial,” she says.
But her final essential is honesty.
“Everyone makes mistakes. It is what you do to correct mistakes that define you,” Yungeberg says. “Be honest, do the right thing, and don’t walk away.”
M&A Activity is Back - With a Caveat
Deals are taking longer amid heightened due diligence
By David Lewis
Welcome to the new normal.
After a tough few years Colorado M&A is back almost all the way.
That “almost” caveat comes because mergers and acquisitions continue to require an extraordinary amount of hand-holding and due diligence, delays, hesitation - all of which add up to increased transaction risk.
Still, deals are getting done, particularly but not entirely within the middle-market M&A bracket occupied by most Colorado professionals.
Internationally, mergers and acquisitions negotiated a tough year, especially against the background of Europe’s sovereign-debt crisis.
Locally, deal professionals had more fun. This had a lot to do with their sub-bulge bracket clientele.
Middle market means different things to different people. Denver-based Integris Partners defines its target market in the $10 million to $100 million range.
“The bulge-bracket companies need a little bit more hand-holding, a little bit more CYA than actually adding a whole lot of value,” says Managing Director Patrick R. Seese. “These billion-dollar companies have a lot of sophistication, so you are often just making sure they are on track, holding their hands. In the middle-market, certainly the lower middle-market, a lot of these owners don’t have the sophistication when it comes to mergers and acquisitions, so it ends up being a lot more fun.”
This past year Colorado M&A experts ended up having fun and making money, too.
Not that all Colorado M&A practitioners are mid-market. Kevin Cudney of Brownstein Hyatt Farber Schreck notes that his firm represents “some very un-Denver-like clients, such as Blackstone Apollo, Carl Icahn - names you would not ordinarily associate with a Denver law firm.”
“Most of our deals are in the $20 million to $150 million range, and then there are the larger transactions that are outliers that are well in excess of that,” Cudney says. “Conversely, there are transactions that are smaller than that, usually as part of a longstanding relationship.”
Colorado deals included examples from a variety of sectors, said Hendrik Jordaan, chair of Morrison & Foerster LLP’s private equity investments and buyouts practice.
“We’ve got a significant energy backbone that continues to be active, whether it is pure E&P (exploration and production) or E&P services. That will continue to be robust; a very interesting trend recently. We have a deep and rich telecommunications in this town dating back to the US West days. Telecommunications broadly defined is going to continue to be robust. Technology as well is going to continue to be strong, as is health care,” Jordaan added.
Meantime, forget the classic notion of the marketplace as either a buyers’ or sellers’ market.
“There are haves and there are have-nots,” Cudney says. “The market for targets is very bifurcated. The good deals are drawing multiple buyers, and financing sources are not afraid of them. On the other hand, the have-nots are not attracting any buyers. It’s a very strange phenomenon.”
A “have” possesses strong management, a leading market position, consistent operating results, and “a mental mindset of being ready to deal,” Cudney says.
But, “If any of those are missing, questions start arising, and the more questions that arise, the more issues there are.”
The major result may be that price is no longer the determining factor that it has been historically.
“It used to be, if the question was, ‘How do you resolve doubts?’ The answer was, you adjust the pricing. Nowadays if the business is not a ‘have,’ it may not attract a buyer at any price. It’s a strange phenomenon. On one hand you may have an attractive target that has multiple suitors. On the other hand, you have the other ‘have-not’ target, where you can hear the crickets.”
These are deal differences. Deal similarities have to do with the length of time mergers and buyouts take.
“People who have capital are being much more selective and cautious on how and when they invest that capital,” says Chris Wilson, founder and principal of Denver-based Fortitude MB. “So to some extent the bar has gone up on quality, but maybe more importantly the checks and balances you’re putting in place to verify that quality have also gone up.”
“Transactions take longer to do,” than before the 2007-2008 meltdown, Cudney says. “Typically if somebody said to you, ‘I’m starting a transaction, what are my expectations?’ It would be, ‘Hey, it will take you three months to six months to get a middle-market transaction done.’ Probably now if someone asked me for a generalization, I would say, ‘six months to nine months.’ “
The length of time deals take has to do with longer, more precise due diligence, to start. “Due diligence is longer, and it is more staged,” Cudney says. “And it’s less linear in the sense that due diligence used to be a step along the way. Due diligence is now part of the continuing deal process until the very end.”
It’s not unusual today, as a transaction appears to be reaching its end game, for the buyer to say, “‘This is all well and good, but I’d like to see another month of operating results,’” Cudney adds.
Also no longer unusual are other objections that can crop up and derail a deal. “There are no sure things now,” Cudney says. “Items come up.”
Fortitude MB’s Wilson cites the case of a company on the cusp of being acquired when it was learned that one of its executive team members had an old drug-related conviction on his record.
“A few years back that probably would have been swept under the rug because it was in the past, and ostensibly there were explanations for it,” he says. “But it was unclear the CEO was completely forthcoming on the matter, and it created enough doubt about the integrity of the company and the CEO so that it was easy to say, ‘There are too many other good opportunities. Let’s move on to the next deal.’ “
So the rules of the game have changed, sometimes shockingly, and the M&A transaction landscape remains uncertain and prone to political change. Thus it is more important than ever - whether on the buy or sell side of a deal - to hire the best in legal, consulting and accounting help.
“You have to expect the unexpected in these transactions,” Cudney says. “It’s another reason why having seasoned accountants and seasoned lawyers is important. OK, so you have discovered a problem, but there is a way to soften the impact by creative drafting, by sitting around a table to figure out a way to structure around problems? It has become as important, more important now, than it ever has been.” n
New Way Out: Exit strategies for owners
By Nora Caley
There’s a lot more to selling a business than signing papers and getting a big check. Chris Younger, managing director of CapitalValue Advisors in Englewood, says business owners are often surprised at the steps they must take before selling a company.
“They may not fully appreciate how much due diligence the buyer is going to do. That can require a certain amount of detail, investigation and document work,” he says.
First, Younger says, determine what you want to accomplish with the sale of your business. “Without a goal or objective, the process is likely to yield less satisfactory results,” he says.
The second step is to determine the value of the business. Some business owners overestimate this value, Younger says, because they can’t view it objectively. If there is a gap between what you’d hoped was the value, and what the buyer and investment banker estimate is the current value of the business, then assess the business - or, better, get a third party to do it - to find areas where you can reduce risk and increase value.
Then assemble your team of attorney, accountant and investment banker. “They can all help you think more strategically about the sale process, and prepare you and your business so that the likelihood that your transaction closes goes up.”
Younger says the fastest sale he’s handled took 25 days, but most take about four or five months. Sometimes the delay happens when multiple owners have varying goals. “You do need to have an open, candid discussion to really understand what those different goals are,” he says.
Thor Culverhouse found that out when he sold his database and application automation company, Stratavia, to the technology giant HP in 2010. “It was more time consuming that you would ever imagine,” he says. “I thought in a couple of months we would be liquid, but that wasn’t the case.”
Selling a business is not like selling your home, Culverhouse says, because the home sale has certain deadlines and the buyer is presumably buying only one house. “HP was in the process of buying other companies,” he says. “We had no idea. You have to assume you’re not the only person they’re talking to.”
At the same time, Culverhouse had to communicate with the other investors of Stratavia, including the founder and three venture capitalists. “They have millions of dollars invested in it, they’ve all sold lots of companies, and they’re going to come to the party saying, ‘You’ve got to do it this way,’” he says.
Younger notes that having multiple owners can give the company an advantage. “A company that is heavily reliant on the owner will typically sell for a lot less, if at all, than a company that has a deep, experienced and long-tenured team,” he says. “This is because having a solid team reduces the risk of the business for a new owner.”
Culverhouse, who recently launched another business, willbeHired, agrees that it helps to have a good investment banker on your side, especially one who has sold your type of company in the past. He adds that it also helped that his background was in sales.
“I really tried to understand the buyer persona,” he says. “It wasn’t just me trying to get the highest price. It was, Why did HP want to buy us? What value did they see?”
Road to new revenue standards rocky but convergence still progressing
By Jim Brendel
Most financial statement users agree that revenue is one of the most important financial measures. It is also the area that is most confusing and disparately regulated, and the source of most financial restatements and enforcement actions.
It is why in the movement towards getting U.S. GAAP (Generally Accepted Accounting Principles) on the same page as the rest of the world - the joint work between the Financial Accounting Standards Board and the International Accounting Standards Board to arrive at consensus on worldwide standards - the going has been tough. Originally the “road to convergence” was to deliver final revenue standards by 4Q 2011. It’s been delayed at least another 120 days after a recently revised exposure draft. However, the new standards are not expected to be effective until 2015, which begs the question of why we are focusing so much on it now.
With the significant changes the new rules will bring in revenue recognition, they will be retrospective up to three years prior, or 2013. If companies don’t begin to analyze the rules soon, they might have to create two sets of records or completely restate financial statements, both of which are expensive and problematic.
How the new revenue recognition standards will affect private and public companies
For those who want a more detailed look at the proposed changes, we’ll go into that later in this article. First, we wanted to give our view of how companies, employees and financial statement users will be affected in general. While many of the changes involve mainly language or minor tweaking, here are some significant differences in revenue recognition:
• Any contract tied to GAAP revenue will be impacted, such as earn outs on purchase agreements, compensation arrangements, buy/sell agreements and options awards.
• Net income can change, which could affect debt covenants. Some debt agreements are being drafted to require “good faith” renegotiation of covenants based on any new accounting standards.
• The new guidance may impact IT systems, requiring the collection of additional data for financial statement disclosures.
• Processes and controls may change to capture appropriate accounting data and estimates.
• It may impact how budgets are developed and updated.
• Changing revenue profiles will affect tax implications.
• Most importantly, gross margins will be affected depending on the industry. Any manufacturing, distribution or retail firm will likely see a difference on the top line margin. For example, financial analysis that focuses on gross margins will change with the new rules. Another example: Private company sellers could see lower gross margins, potentially affecting valuations.
Where we’re at: A summary
The main principle of the new revenue recognition proposal is to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to receive in exchange for those goods or services.
It sounds simple on the surface: Match revenues with the delivery of a good or service. But complicated situations, well, complicate things. A company would apply a five-step process to apply the revenue recognition proposals. They are:
Step 1: Identifying a contract - A contract is an agreement between two or more parties that creates enforceable rights and obligations. Contacts don’t need to be written and if a party can terminate the contract before performance occurs, a contract does not exist.
Combining contracts - Contracts with the same customer entered into near or at the same time should be accounted for together if the following criteria are met: Contracts are negotiated as a package with a single commercial objective; the amount of consideration of one contract is impacted by the other; the goods and services are related in terms of design, technology or function.
Modifications, or change orders, are treated separately if the price of the good or service added is commensurate to it. If not, the contract modification is reallocated to existing performance obligations.
Step 2: Identifying performance obligations - A performance obligation is a promise in a contract to transfer a good or service to the customer. A company would account for a good or service separately only if it were “distinct,” or if it could be sold separately with a distinct function and profit margin.
Step 3: Determining transaction price - The transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods or services, excluding third party taxes and the like. The price should be estimated using the probability weighted amount or the most likely amount. This is one of the major changes from current U.S. GAAP. An allowance for expected credit losses should be estimated at the contract inception and presented as contra revenue on the top line instead of in G&A expense.
If the situation is unknown or uncertain and an entity is not able to reasonably ascertain whether it is entitled to receive an amount, revenue should not be recognized. Examples include when the entity has a lack of experience with specific types of contracts, or when the outcome is based on factors outside the control of the entity, or if the customer has an option to cancel the contract.
Step 4: Allocation of transaction price to performance obligations - The amount of revenue should be allocated to each separate performance obligation, based on relative selling prices on a stand-alone basis. The residual approach is also acceptable. This methodology is similar to recently enacted U.S. GAAP for most industries, but will be a major change for software companies, which are currently subject to much more restrictive requirements.
Step 5: Recognition of revenue on satisfaction of each performance obligation - Revenue is recognized when an entity has satisfied a performance obligation and the customer has control of the good or service. Control is defined as the customer having an unconditional obligation to pay, and having legal title and physical possession and risks and rewards of ownership.
For a performance obligation that is satisfied continuously, revenue should be recognized using a method of measuring progress towards completion. If progress can’t be measured, revenue is not recognized. The methods of measuring progress may be an input method - based on the work towards performance - or output methods, which are based on performance to date. This methodology is not expected to be a significant change from the current percentage of completion accounting used for long-term contracts.
Additional changes
Warranties are troublesome in existing practice. The new guidance breaks warranties out into a separate performance contract if they are sold separately. For example, a retailer that sells an appliance with a separately priced warranty contract would recognize the revenue allocated to the appliance upon delivery, and the revenue allocated to the warranty contract over the warranty term. If the warranty is not sold separately, the revenue would be recognized upon delivery, with accrual of the estimated warranty costs.
Breakage revenue has become more important as gift cards and pre-purchased cell phone minutes have proliferated. Some companies, particularly private ones, recognize breakage revenue - unused minutes or gift card balances - up front based on established historical uses.
Under the new rules, when a pattern of breakage can be estimated, breakage revenue should be recognized on a proportionate basis, i.e. over the life of the gift card until expiration. If a pattern can’t be estimated, such revenue should be recognized only when the customer’s usage becomes remote, or past the expiration of the card, for example.
Contract costs. Costs of obtaining a contract are capitalized if they are incremental, directly related to a contract, and recoverable from the expected contract.
Uncertain consideration - This guidance covers things like sales-based royalties and performance bonuses. Currently, most companies do not recognize these contingent revenues until they are known, but under the new guidelines they will be recognized when reasonable assured, on a probability-weighted or most likely amount
Bill and hold transactions, where a customer prepays for goods that are delivered later are not currently discussed in GAAP, but are part of SEC guidance. The new guidance adopts the stringent SEC stance. Thus, some private companies will not recognize revenue as early as before. Up-front fees will be recognized over the estimated performance of the service, i.e. a health club membership, which, based on experience, could extend past the membership. Time value of money must be considered if there is a financing component to the sales, such as when there is more than a year between delivery of the good or service and customer payment.
Revenue recognition is one of the major projects on the proposed international convergence schedule. It was supposed to be completed by now but has been extended, in part because of the approximately 1,000 comments that have been written. Now, the new target for issuing a final standard is the end of 2012. As noted before, the mostly likely adoption would be in 2015, requiring either full or partial retrospective accounts going back up to three years.
About the author
James Brendel, CPA, CFE, is the national director of audit and accounting for Hein & Associates LLP, a full-service public accounting and advisory firm with offices in Denver, Houston, Dallas and Southern California. He specializes in SEC reporting and assists companies with public offerings and complex accounting issues. Brendel can be reached at jbrendel@heincpa.com or 303.298.9600.
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Barry Levine joined Hein & Associates as director in business advisory services. He will work with clients on strategic growth planning, business performance improvement, mergers and acquisitions, exit planning, and turnarounds and restructurings.
Levine has more than 27 years of business and legal experience working with both private and public companies in a variety of executive management (e.g. CEO), corporate development, business consulting, and legal positions. He was also a co-founder and owner of a middle-market consumer products company.
In addition to his business and transaction experience, Levine also has an extensive legal background. He served as general and associate counsel with a variety of public and private companies. Levine was also a senior corporate and securities attorney in Washington, D.C. and Los Angeles with two law firms, including six years at the international law firm of Fried, Frank, Harris, Shriver & Jacobson.
