Speakers Highlight Cleveland’s Rust Belt Resurgence, M&A and Global Growth – April 29, 2015 by Randy Myeroff

Cleveland has taken center stage recently due to its resurgence and growth potential. We asked local experts to join us at our annual Executive Focal Point seminar to discuss the local, national and global landscape and what Ohio businesses have to look forward to. Read below for a glance at the insights provided to our clients.

Rust Belt Resurgence
Joseph Roman, president and CEO of Greater Cleveland Partnership, shared his views on the Renaissance of Cleveland and how we got here, breaking down history into four major phases: extraordinary growth experienced from 1870-1940, including serving as a primary manufacturing hub in the country; the “do nothing era” of the late 1940s to 1970s, during which time Cleveland fell into decay; the “catch-up era” of the 1980s to the early 2000s, where we got back to doing the things metropolitan areas should be doing, building up treasures such as University Circle, sports facilities and neighborhood communities; and what we are now relishing as the “vault-ahead era,” in which we invested almost $15 billion in the region during one of the worst recessions of our time and are seeing very promising results, such as landing the Republican National Convention (RNC). Expanding on the convention and the RNC’s decision to select Cleveland, Joe commented that we did not “win the lottery” when it comes to the RNC, but that our years of hard work to change the perception of Cleveland and Northeast Ohio are paying off.

Joe also addressed challenges we still need to work through, such as more fully engaging business leaders and young professionals, rebuilding the domestic flight market at Cleveland Hopkins Airport and supporting a new success strategy for Cleveland Public Schools. But his overall message was positive: Northeast Ohio is alive and well. Heavy investment in our region is changing the local landscape dramatically, bringing the national spotlight to Cleveland in a number of positive ways.

Global Economic Outlook
Tom Haught, CFP®, ChFC®, of Sequoia Financial Group focused on global trends in his annual economic and investment update. Overall, plunging oil prices and aggressive monetary policies around the world suggest global growth has the potential to accelerate in 2015, with no impending recession in sight.

In particular, Tom provided three key insights that are impacting the economy: 1) the U.S. dollar is up over 25% versus other global currencies; 2) U.S., Europe, Japan and China are being heavily impacted by falling oil prices (in the U.S, however, the impact is muted by slowing capex expenditure on oil and gas exploration); 3) the Fed is preparing the markets for rising interest rates later in 2015 and 2016.

Overall, the U.S. appears to be reasserting its role as leader of the global business economy, even though growth remains choppy in a longer but less robust business cycle expansion. Tom also pointed out that while no recession is in sight, there is also no dramatic expansion in store soon either. We remain at an average pace of rebuilding. In the case of the Eurozone, Tom noted that reports of its death have been greatly exaggerated. Despite still showing tepid growth, their growth seems set for a period of genuine recovery. And although Japan underwent two significantly negative quarters following the consumption tax hike in Q2 2014 and a disappointing rebound in Q4, there is renewed faith in the country after easing its monetary policy and postponing sales tax increases, which seems to have sparked consumption. The growth outlook for emerging market countries is mixed, but the majority of country economic forecast revisions have been downward.

Based on all of the economic indicators, Sequoia still favors a balanced portfolio between equities, fixed income and alternatives with only a modest overweight in equities.

Strong Market for M&A
Justin Thomas, CPA, and a partner in Cohen & Company’s Transaction Services Group, discussed the mergers and acquisitions landscape, noting that acquisition activity remains high and, in general, seems to be the most efficient driver of growth right now in a market where corporate cash balances are strong and organic growth is low. Strategic buyers are substituting acquisitions for research and development costs. Sellers are in charge, and information technology, healthcare and aerospace sectors, along with niche areas in the industrial products space, remain hot areas.

Justin also noted other key trends to watch. Lower-middle and middle-market valuations remain relatively stable; EBITDA levels are driving the biggest differences in valuation bands. There is a new look for private equity, with fundless, or independent, sponsors and family offices becoming a larger part of the picture, and minority investment funds and non-cash terms to entice sellers becoming more popular. Seller representation/and sell-side due diligence is on the rise, for both PE and corporate sellers, to help minimize due diligence time and drive certainty to close. And letter of intent terms are becoming increasingly more detailed, attempting to set a precedent later on for buyers during the drafting of the final purchase agreement.

While M&A activity is expected to continue to climb throughout 2015, the biggest challenge will no longer be obtaining funding, but whether there are enough quality businesses for sale to keep up with demand. Justin’s message to those looking to sell or buy? Timing is less important than EBITDA levels and growth prospects of the business. Pursue an acquisition if it is the right growth and diversification strategy and the right time for shareholders. Don’t wait for market cycles to change. Do what’s right for your situation or you could miss out on opportunities.


Thank you to all of our speakers and attendees for bringing us these insights and many more in our annual executive event.

 

 

This communication is published by Cohen & Company for our clients and professional associates. Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.