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Q3 2015 Review

Trusted.   Proven.   Global.

Quarter 3, 2015  Newsletter  
Volume 5, Issue 3

Middle Market Temperature Q3

Overall deal flow in August hits its lowest point since February, according to the Mid-Market M&A Conditions Index (MACI), a barometer created by Mergers & Acquisitions.  Leads declined for the third month in a row, and Completed Deals dropped nearly 6 points.
While some of the slowdown may be attributed to summer vacations, keep in mind that July was one of the strongest months in 2014.  

IMAP At A Glance  
This report contains regional reviews and highlights on M&A trends in the industry. 
Click link below to view:

One of the Biggest Reasons for Failed M&A?
NACD recently published a thought provoking article by Mark B. Nadler and Julie J. Chen on what a Board must do to get the value they need. One of these items is to ensure the Board itself reviews all planned Mergers and Acquisitions.
Approximately two thirds of M&A’s are considered failures. And the over-whelming majority of those failures are attributed to culture. An informed HR perspective on culture fit should be a standard part of every M&A discussion by the board.
Culture has emerged front and center on the business radar as a source of competitive advantage.  You constantly hear directors ask: “How does Apple do that?” And, “Why can’t we?” More often than not, the answer involves culture.

FRG has a long track record of highly successful transactions because we understand CULTURE.  We call it “chemistry”.

 the full article: 


The Chinese Auto Sector:

With by far the largest auto market in the world – and still growing faster than almost any other market – China is exerting a growing influence over the development of the global automotive market and key global automotive trends.

An excerpt from our Chinese IMAP partner, InterChina Consulting, CEIBS 


Cost Sharing Arrangements (“CSAs”)  and the IRS: Tax Court overturns IRS Cost-Sharing Regulation
On July 27th, 2015, in Altera Corporation v. Commissioner, the Tax Court held Treasury regulation section 1.482-7(d)(2) invalid.
Cost-sharing arrangements enable a US entity and its foreign affiliate to co-develop intellectual property (“IP”) and share in the associated research and development costs in a tax-efficient manner.
This decision by the tax court is significant to taxpayers who are parties to CSAs but, if sustained, could also have a significant impact on IRS regulations procedures going forward and could make it easier in some cases for taxpayers to challenge other IRS regulations.
As an immediate matter, any taxpayer with a CSA should review whether during any open year it included Stock Based Compensation in the CSA cost pool, and if so, may want to consider filing claims for refund to protect itself.


Robert Newman, 
Director of FRG’s
Rail Practice,  
presented his paper on Vertical Track Deflection at the International Heavy Haul Conference in Perth, Australia in June. 

Here Robert shares some interesting background regarding the event:

The IHHA was formed in 1978 to exchange information to improve the durability and safety of railroad track and rolling stock for railroads transporting heavy loads.  Heavy Haul Railroads are in contrast to light high speed passenger trains which have very different engineering issues.

Heavy Haul Railroads are typically railways owned and operated by railroads and mining companies which transport iron ore, coal, bauxite, rock, oil, and other heavy minerals.  Also included in this category are the USA Railroads which carry heavy freight including the ores previously named.  To carry these loads, the track has to be especially designed for heavy axle loads, and this was my interest in attending this conference. 

These railroads are located chiefly in the USA, Canada, Brazil, South Africa, China, Sweden, Russia and Australia.


FRG Corner



Naples, Florida:

Home to 

Falls River Group

named the 4th Happiest Place in the US!


We are happy to learn that the University of British Columbia has selected Naples as among the top 10 in their list of “happiest places in the US!” 




Betcha Didn’t Know…


In the late 1700’s, many houses consisted of a large room with only one chair.  Commonly, a long wide board folded down from the wall, and was used for dining.  The ‘head of the household’ always sat in the chair while everyone else ate sitting on the floor.  Occasionally a guest, who was usually a man, would be invited to sit in this chair during a meal.  To sit in the chair meant you were important and in charge.  They called the one sitting in the chair the ‘chair man’.  Today in business, we use the expression or title ‘Chairman’ or ‘Chairman of the Board’.




A Quote from Bill Moyer:


“I’ve always thought that the American eagle needed a left wing and a right wing.  The right wind would see to it that economic interests had their legitimate concerns addressed.  The left wing would see to it that ordinary people were included in the bargain.  Both would keep the great bird on course.  But with two right wings or two left wings, it’s no longer an eagle and it’s going to crash.” 

FRG People News

Caitlin Schubert is our 

indispensable Administrative Associate, and also our PR guru. 

Caitlin graduated from Florida State University in 2011 with a Bachelor of Science degree in Public Relations, with an emphasis in International Affairs. She then worked for three years in Australia, gaining experience in Marketing in the Insurance and Commercial Furniture sectors and in Communications. 

If you have colleagues or friends whom you think may enjoy our newsletter, please write to Caitlin at 

The FRG Team

Dr. Maegan Evans,
Managing Director, 1997

Kurt Andersen,
Managing Director, 2008
John Rowell,
Managing Director, 2013
Tim May,
Managing Director, 2015
Rob Van Genderen, Director, 2015
Robert Newman, Director, Rail Practice, 2009
Erik Bindslev,
Associate, 2012
Suzanne Pahl Boland, Director of Operations, 2011
Caitlin Schubert,
Administrative Associate, 2014
Bradley Moore, Associate, 2015
A.J. Krause, Business Development, 2015
Michael Ross, Analyst, 2015
Kerry Dustin,
Founder & CEO, 1997
Our Strategic Advisors
Jerry Bogo,
Multi-Industry, 2008


Robert McCashin,
Defense & IT,  2009
Mark Michel,
Multi-Industry, 2012
Neil Goeren, Innovation & Consumer Products, 2012
Michael Benz,
Multi-Industry, 2012
Ron Glah,
Multi-Industry, 2004 
Frank Pinto, IT,  2004

Clancey McKay,

Multi-Industry, 2014
Securities conducted through StillPoint Capital LLC, where Amy Cross is CEO and Chief Compliance Officer. Member FINRA/SIPC.

IMAP’s strength and premium quality service continue to allow us to offer significant value for clients under any type of market conditions.  Click below to view:

Welcome to FRG’s Newsletter


Dear Friends:
It has been an exciting past few months at FRG with new employees, new clients, and as always, servicing our very special existing clients. It is hard to believe that summer is now over and we are sending out the 3rd quarter newsletter. Time really does fly. Speaking of which, Kerry celebrated his 70th birthday August 3rd with our family in Ohio and a surprise party in Louisville given by a close friend. He says he’s never retiring, so plan on getting these newsletters for at least the next 20 years!

As most of you are aware, Falls River Group is a member firm of IMAP, the world’s 4th ranked Merger & Acquisition partnership with over 450 deal makers in 30 countries.  FRG has worked on and contributed to 87 international deals with IMAP partners in the past year.

Kerry, Tim May, A.J. Krause and I have just returned from our semi-annual meeting (this one in Toronto) with participants attending from over 40 countries discussing the international M&A landscape and deal flow across the world. Part of the discussions centered on interest rates, the debt crisis, China and how this might impact cross border valuations. Many of the participants from Europe also discussed the shifting landscape in Europe given the influx of refugees and the positive and negative impact that might have on the EU. IMAP is ever expanding its global footprint, and in 2015 welcomed new member firms from:
  • India
  • Brazil
  • Boston
  • Columbia
  • Morocco
  • United Arab Emirates
The first article we have included is by a close friend and former colleague of mine. I worked as a consultant to Richard Rahn when he was Chief Economist for the U.S. Chamber of Commerce in Washington D.C. during the Reagan years. Richard’s office overlooked the White House and it was a great time for free markets with a close collaboration between the Chamber and the philosophy of the Reagan Administration. Richard has been a tireless advocate for minimal government intrusion into our private, business and professional lives.

The second article has been written by Rob Van Genderen. Rob has recently joined FRG as a Director and is an expert in the oil and gas sector having previously led Deutsche Bank and KPMG’s oil & gas M&A groups in Russia with global client coverage responsibilities.  He has advised international majors and national oil companies from around the world on a number of successful cross-border transactions. He has shared his unique perspective on the industry in a very detailed and interesting article.

Lastly, Kerry, Rob and I were invited two weeks ago to speak before the Chemical Specialties Management Council (CSMC) in Naples.  We addressed over 20 member firms and our topic was “In a Consolidating Industry, Are You a Buyer, Seller or Both”.  The questions included in our third article are those that I discussed with the attendees.  After all, the timing of the sale isn’t just about the markets.  It’s also about the owner’s ability to emotionally transition his or her business.

Please remember, the door is always open here at FRG. We’ve already seen some early fallbird-snowbird activity and expect this to be a record season of visitors in Naples. We hope this includes you!

Warm regards,

Maegan Evans
Managing Director

Ruin by Regulation
by Richard W. Rahn
What is the purpose of financial regulation? Advocates of more and more financial regulation say it is necessary to protect the consumer against greedy bankers and other financial professionals and institutions. But what if excessive financial regulation is actually reducing consumer choice and increasing the cost of banking, saving and investing well beyond the point of any benefits?

Most people understand that competition is good in that it results in better products at lower cost and more choice. Yet the government has been destroying financial market competition, increasing consumer cost and reducing choice. In 1921, the United States had 31,000 commercial banks, and now we have only 5,500 for three times the population. Part of the reason for the decline in the number of banks is due to natural market forces, such as mergers, to gain the benefits of economies of scale and to allow banks to have nationwide branch banking, both of which benefit consumers. But another major reason for the reduction in the number of banks, particularly in recent years, has been the cost of bank regulation, which puts small and community banks at a severe competitive disadvantage. In fact, no new banks have been charted since the beginning of the Obama administration. The massive increase in regulatory costs has resulted in fewer and more costly bank services for the consumer.

Regulations on banking and the rest of the financial industry are developed and enforced by the Federal Reserve, the Office of the Comptroller of the Currency, the Treasury Department, the Internal Revenue Service, the Justice Department, and now even the Department of Labor. Officials in the Obama administration at the Department of Labor are attempting a power grab with the claim (without providing supporting evidence) that financial advisers may be ripping off their customers by putting them in investment funds controlled by their own companies (which may actually be a good choice) and charging them commissions on the purchase and sales of funds and other products.

Most investors need investment advice. Professional financial advisers need considerable schooling given the complexity of financial markets, products and regulations. And, like other professionals, they need to be paid for their services. It may take a financial adviser no more time to advise and service a client with a $10 million account than a client who has a $50,000 account.

Under the proposed Department of Labor rule, many small investors will be unable to get investment advice and education for their Individual Retirement Accounts since the companies would no longer be able to cover the cost by charging commissions on many of the transactions. Small investors would be forced into index funds (which may or not be appropriate for a given investor) or pay a negotiated fee for investment advice, which is likely to increase the overall cost for the small investor, causing some of them to go without needed guidance. A number of members of Congress have written to Secretary of Labor Thomas Perez in opposition to the proposed rule, noting the “regulation will reduce access to investment options and increase cost for retirement savers” and that the “proposed rule is hopelessly complex, confused, and in its current form, unworkable.”

Yes, a few investment advisers may not be fulfilling their fiduciary responsibility to their clients, but there are already plenty of laws on the books to take care of this problem, if the existing intense competition in the industry is not sufficient. Yet every day, government fails in its fiduciary responsibility to spend taxpayer money wisely. Perhaps if the administration spent more time making sure that the Veterans Administration, the Office of Personnel Management, the IRS and others are well managed and not corrupt, rather than taking on a largely non-problem and turning it into one, Americans would be better off. It is as if a guy from the mafia comes and tells you that for a big fee, he is going to protect you from the carwash overcharging you.

If the administration is so concerned about the cost of financial services to consumers, why has it persisted for more than two years in forcing a global regulation (the Foreign Account Tax Compliance Act, or FATCA) on banks and other financial institutions, which has had the effect of making it almost impossible for millions of Americans living abroad to obtain bank accounts without prohibitive cost? As in the proposed Department of Labor regulation, the administration has failed to do a cost-benefit analysis of the FATCA regulation, even though it will likely cost millions of jobs and hundreds of billions of dollars in needed foreign investment. This is a real failure in fiduciary – and moral – responsibility.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth. 

Van Genderen

I am delighted to have joined the team at Falls River Group, and both confident and excited about the business platform offered by FRG combined with the global reach of IMAP.  My career has been almost entirely international so I am very pleased to continue working in a global business while being based in my home country in southwest Florida.
While based in Moscow I was working as Head of Oil & Gas Investment Banking for Deutsche Bank and later as Head of Natural Resources M&A for KPMG.  The territory of my primary business focus covered all 11 time zones in Russia as well as Kazakhstan and the Ukraine.  My clients included a wide spectrum of oil & gas companies from pre-production exploration companies to large private companies to the behemoth Russian government control players, Rosneft and Gazprom.  Many of my clients were foreign companies who were looking for investment opportunities in the former Soviet Union such as Chevron, Shell, BP, Italy’s ENI, and India’s ONGC.  For example, I advised ENI on a $5.8 billion acquisition of a 20% stake in GazpromNeft and a few large, undeveloped natural gas assets in northern Siberia with billions of barrels of oil equivalent (BOE) reserves.  I also advised ONGC on a $2.5 billion acquisition of a company with one billion barrels of oil reserves.

Drawing international oil & gas companies to Russia are the massive reserves and production.  According to BP’s Statistical Review of World Energy June 2015, at the end of 2014 Russia’s proved oil reserves totaled 103 billion barrels, or 6.1% of the world total, and production was at a rate of 10.8 million barrels per day, or 12.7% of the world total.  Russia’s proved natural gas reserves were 1,153 trillion cubic feet, or 17.4% of the world total, and annual production of 20.4 trillion cubic feet, or 16.7% of the world total.  Russia supplies 25-30% of the Western European demand for natural gas.  Nearly 70% of Russia’s exports are oil & gas products and the development of other domestic industries has emerged from Soviet times only to a limited extent.

Despite the attractiveness of the Russian oil & gas industry from a resources perspective and setting aside the current sanction environment, investing in the Russian oil & gas is not an easy endeavor.  Over the course of the last 10 years the Russian government has consolidated much of the industry under its two major state controlled companies, Gazprom for natural gas and Rosneft for oil. Of the remaining large players there are a number of state-affiliated companies like Tatneft, and the only remaining independent majors are Lukoil in oil and Novatek in gas.  The Kremlin though has a tight grip on anything that happens in the sector and foreign investment in the sector has steadily become a Russian foreign policy matter as much as a business matter.  This phenomenon in part is the origin of the characterization of Russia under President Putin as “Russia, Inc.”

As a M&A advisor the nature of the advice sought by our clients went well beyond that which would be expected in a more developed, less-government-controlled market.  The keys to achieving success which are centered on helping Russia achieve its objectives are illustrated in the diagram below.  In fact, to a large extent these keys are applicable to any developing economy dependent on immense natural resources.
The important issues for Russia in welcoming and accepting foreign investment can be summarized as (1) Partnership/Russian Control, (2) Management, (3) Funding, (4) Geopolitical considerations, (5) Technology, and (6) International opportunities. 

(1) Partnership/Russian Control:  Foreign investors are effectively obligated to partner with a Russian controlled oil & gas company in order to make an investment.  This is mandated by Russia’s law on foreign investment in strategic sectors and prior to that law’s enactment in 2008 any major deal would need the Kremlin’s unofficial blessing obtained through diplomatic relations and back-channel communications often facilitated by M&A advisors. Typically Russia will retain a 51% share when they allow foreign acquisitions of assets or companies and there is always a shareholders’ agreement often providing more control to the Russian partner beyond the governance rights associated with a simple majority share.

(2) Management:   Russia has massive resources but has historically lacked the management depth to reach its full potential so Russia seeks foreign partners that will make significant contributions to the management of oil & gas developments. The Soviet style of management is still pervasive where the leader dictates from the top and middle management has little decision making authority and capability.   Over the last 25 years since the break-up of the Soviet Union, Western companies operating in Russia have trained and developed a new generation of Russian managers.  Young Russians have been studying abroad and obtaining MBAs from top business schools in Europe and the United States. Unfortunately, recently there has been a ‘brain drain’ of top talent from Russia and, while many experienced managers remain in Russia, with a population of 160 million Russia will need another generation to evolve and to build the management depth needed. 

(3) Funding: Russia’s enormous resource base and the resulting development funding requirements outsize Russia’s capabilities.  Therefore Russia welcomes foreign buyers who will carry Russia’s part of the financing.  This issue has become more acute with the current sanctioning of Russia’s state banks so we have seen more deals with China, reluctantly for Russia, which are basically financing agreements.  A classic example can be seen in the $3.5 billion sale of UdmurtNeft.  Deutsche Bank acted as the sellside advisor for TNK-BP.  The acquisition price was 100% paid by China’s Sinopec but Sinopec received only a 49% share and Rosneft received 51% under the provision that Rosneft’s share would be paid out over the long-term as dividends were paid out.

(4) Geopolitical considerations:  Since Putin came to office in 2000, Russia has been trying to re-establish its sphere of influence primarily in the former Soviet Union, Eastern Europe and the Soviet Union.  This has been carried out in business, cultural and military ties.  Russia uses its oil & gas assets as chips in its geopolitical game of cards so potential acquirers need to consider the geopolitical strategic rationale for Russia and how to elevate the discussion to the inter-governmental level.  An example is illustrated when Russia began shifting its focus to China and India.  We were advising ONGC on an acquisition in Russia and prior to a trip to India by President Putin, we prepared a briefing about the proposed transaction for India’s Prime Minister Singh.  Among other items, the discussion agenda for Putin and Singh included ONGC’s potential acquisition of the Russian oil company and Russia’s sale of MiG fighter jets to India.

(5) Technology:  Russia seeks investment from foreign companies who bring technology to the table.  While Russia has a seemingly endless reserve of oil & gas, the large, easy-to-extract reserves in Western Siberia are depleting.  The future production for Russia lies in even more remote and difficult environments, namely Eastern Siberia, Arctic regions and offshore.  These large developments may take decades to develop, will require massive capital and very importantly will require technology that Russia does not have.  For those reasons Russia created a joint-venture with Exxon for Arctic development and Russia allowed a consortium of foreign companies to buy into the massive offshore Shtokman project.  Also for those reasons, current Western sanctions on Russia include restrictions on technologies that would help Russia develop projects critical to its future oil production.

(6) International opportunities:  Russia has been interested in selling opportunities to foreign companies who can offer quid pro quo opportunities for Russia beyond Russia’s borders.  In the deal between Rosneft and Exxon for the development in Arctic areas, Exxon not only brought funding, management and technology, Exxon gave Rosneft shareholding stakes in 20 blocks in the Gulf of Mexico. Russia’s oil & gas interests also extend to Venezuela, Vietnam, northern Africa and the Middle East.

The current sanction environment has tied the hands of large scale acquisitions and investment in Russia. The objectives for Russia have not fundamentally changed although the focus has been weighted more heavily toward the funding objectives.  Western and other foreign oil & gas companies continue to seek opportunities and maintain relationships with hopes of positive geopolitical developments that will allow everyone to get back to business.

Rob Van Genderen


An Excerpt from FRG’s presentation to the Chemical Specialties Management Council

September 19th , 2015

How are you performing as a CEO, Chairman or COO? How would your key management, customers and family answer this question? 

What do you have more of, passion or exhaustion?

Have you been married to the business too long? If you are too emotionally connected, the sale could feel like the death of a family member. Can you begin to wind down a little now and find outlets and hobbies you enjoy?

How is your health? Have you thought about what will happen to the business if something happens to you? Are there family members or key management willing to take your place when you want to retire or exit the business?

How is your financial health? Economists have identified loss aversion as a major factor in financial decision making in that most people would rather avoid losing money then acquiring more. The psychological impact of losing money is thought to be twice as powerful as the pleasure of earning it. Are you stuck in a loss aversion mode? Are you overly protective and worried about taking the next step in the life cycle of your business?

Are you worried about being able to let go of your business identity? Someone else has your parking space, your coffee mug, your secretary? Your identity as CEO? 

Am I irreplaceable? Do you want to keep going or are you willing to start to think about taking chips off the table and enjoy being you? Do you have a bucket list that includes more than business goals?

A healthy ego is a very good thing. Everyone in this room has one or you wouldn’t be here. Pat yourself on the back and ask yourself, do I like myself enough to retire? 

Maegan Evans, Ph.D.
Managing Director


The IMAP Board of Directors

From left: Scott Eisenberg-USA, Sergio Milic-Chile, Jurgis Oniunas-Croatia, Jurg Kurmann- Austria, Kerry Dustin – USA, Gilberto Escobedo – Mexico, Eduardo Morcillo – China, Steve Dresner – USA, Francisco Gomez – Spain, Michael Reeves – UK



Falls River Group, LLC, a Global Merger and Acquisition Advisory Firm based in Naples, Florida, and a member of IMAP, an exclusive global partnership of leading M&A firms providing M&A services focused on the middle market.  IMAP celebrates over 40 years of successful global collaboration with consistent ranking among the top M&A advisories throughout the world.  From more than 35 countries throughout North and South America, Eastern and Western Europe, the Middle East and Asia, IMAP advisers provide strategic merger, acquisition, and divestiture and related corporate finance services.

 For more information, visit: and


 Trusted.  Proven.  Global.

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