PACT Meetup

Wednesday, September 11, 2019
5:30 – 7:30 p.m.

Tactix Real Estate Advisors 
100 N. 18th Street Suite 520 
Philadelphia, PA 19103

PACT has been working all summer to plan for our 2019-2020 program year, and we can’t wait to kick things of with you!

Help us gear up for the PACT Capital Conference, learn about our plans for 2020, and network with fellow members of our innovation community at the amazing indoor/outdoor (with a view) office space of Tactix Real Estate Advisors.

Hosted by: Tactix Real Estate Advisors

Register here: https://philadelphiaalliancecapitaltechpaassoc.wliinc23.com/events/PACT-Meetup-at-Tactix-Real-Estate-Advisors-83/details

Technology company value creation through optimized quote-to-cash

Written by Kim Susko, Director, RSM

Successfully scaling your business via integration and automation

In today’s competitive marketplace, speed, efficiency and automation are the keys to driving a successful organization. For growing technology companies, this is especially true whether your goal is to improve revenues and profitability or you’re eyeing an eventual exit. In fact, according to multiple studies across major research institutes and private equity firms, operational improvements that drive efficiencies contribute to nearly half of the value creation in private equity multiples.

For many emerging technology companies, these improvements and value creation can come from the implementation of an integrated and automated end-to-end process known as quote-to-cash. The critical success factor in leveraging this platform, however, boils down to actually designing the right quote-to-cash process that best fits your specific organization’s needs and growth goals. Let’s explore a little more on two types of quote-to-cash processes and their benefits.

Read full article.

Qualified Opportunity Zones- an Executive Summary

Written by Mark Sloan, CPA, Director, CFO Consulting Partners

There has been much discussion regarding Qualified Opportunity Zones (“QOZ”), the tax benefits of investing in a QOZ and how it should fit into a strategy of minimizing taxes on long term capital gains. This newsletter will provide an overview as to the rules governing QOZ and some practical considerations regarding investing in QOZ.

BACKGROUND:

As a result of the Tax Cut and Jobs Act (“TCJA”) passed in late 2017, a taxpayer may elect to recognize certain tax deferrals and exclusions on the gain realized from the sale or exchange of property to an unrelated party if the gain is reinvested in a qualified opportunity zone fund within 180 days from the date of the sale or exchange and the gain remains invested for a defined period of time. 

Opportunity zones are eligible low-income census tracts that had either poverty rates of at least 20 percent or median family incomes no greater than 80 percent of their surrounding area’s, according to the U.S. Census Bureau’s 2011-2015 American Community Survey.  Such tracts have been nominated by governors and certified by the U.S. Department of Treasury for designation as an Opportunity Zone. There are over 8,700 such tracts located throughout the United States. 

A qualified opportunity fund (“QOF”) is the vehicle to which gains must be invested in order to qualify for the tax benefits of the program.  In order to achieve the tax benefits, the taxpayer must invest in a QOF and not directly into qualified opportunity zone property.  A QOF is a corporation or partnership organized with the specific purpose of investing in opportunity zone assets.  The entity must invest at least 90% of its assets in qualified opportunity zone property.

Qualified opportunity zone property can be in the form of direct ownership of business property, or into opportunity zone portfolio companies through either stock ownership or partnership interest.  Certain businesses are precluded for consideration as property to be held by opportunity zone portfolio companies and these include golf courses, country clubs, massage parlors, tanning salons, hot tub facilities, racetracks, casinos or any other gambling establishment and liquor stores.  These limitations do not apply when a QOF is investing into the Qualified Opportunity Zone directly.

Upon the investment of qualified gains, the basis in the capital gains will be zero.  The gain will then be recognized into income on the earliest of the disposition of the opportunity zone property or December 31, 2026.  If the QOF is held five years, then the basis is increased by 10% of the original gain and then it is increased another 5% if held for another two years.  If the QOF is held at least ten years, then all gains attributable to the appreciation on the original gain will be excluded from income. 

BENEFITS:

There are numerous tax benefits attributable to the timely investment of capital gains into a QOF.

  • Deferral of tax on invested capital gains until December 31, 2026, at the latest;
  • Permanent exclusion of tax on capital gains of up to 15% if held for seven years, and;
  • Permanent exclusion of tax on any subsequent appreciation on the invested capital gains if held for more than ten years.

OTHER CONSIDERATIONS:

There are other advantages to investing in a QOF that make it a more flexible option to Section 1031 as a means to shelter capital gains:

  • As opposed to Section 1031, which requires the investment of the full proceeds in order to qualify for temporary tax deferral on gains, only the gain portion of the proceeds needs to be invested, freeing up cash at the time of the original sale of capital assets.
  • Investment in a QOF can provide permanent exclusion of tax on a portion of capital gains; Section 1031 transactions will only provide for deferral of tax on capital gains.
  • As opposed to Section 1031, which requires the investment of proceeds into like kind assets, the only requirement for QOF is that the gains are invested into opportunity zone assets.  For example, if a work of art is sold at a gain, then the gain can be invested in a different class of asset such as real estate.
  • It should be noted that as a result of the TCJA, the use of Section 1031 is now limited to real estate assets and no longer other types of capital assets.

While there are significant benefits to investing in opportunity zone funds, there are certain caveats that need to be considered:

  • If the investment has not been disposed of sooner, the invested gain will be recognized in income at December 31, 2026.  This means that the taxpayer will need to provide liquidity for this event while the gain is still locked up in the investment.
  • To achieve the 15% permanent exclusion on the original gain, there must be a rollover of the gain no later than December 31, 2019 in order to achieve the 7 year holding period for this exclusion.
  • To maximize the tax benefits attributable to this program, the strategy is to lock up the invested gains for a period of ten years.  This could result in a lower IRR over the life of the project.
  • Although the census data used to designate tracts as opportunity zones is dated and there may be some areas that have gone through improvement, there can still be a higher risk attributable to investing in areas that are opportunity zones.
  • An investor may not contribute appreciated property directly into the opportunity zone fund.  Such property must be first sold (and begin the clock running for the recognition of a portion of the gain) and the amount attributable to the gain invested into the fund.
  • The regulations impose limitations on the amount of cash and intangible assets that can be held at any time by an opportunity zone fund.  This limitation can be mitigated through a structure where the QOF invests into an opportunity zone portfolio company (either through stock ownership or partnership interest).  Under this structure, the portfolio company can hold intangible assets that are used in an active trade or business and cash in an amount for reasonable working capital needs.
  • The investment in opportunity zone funds should be evaluated on the overall economics of the fund and its strategy, and there should not be disproportional weight given to the tax deferral/exclusion feature of the program as the basis for investing in the opportunity zone.

This newsletter is meant as a broad overview on Qualified Opportunity Zones.  There are many other details concerning the structure of funds, limitations on the type of assets that can be held by a QOF fund, determination of original use and subsequent improvements, etc.  CFO Consulting Partners has been following developments in this area and we stand ready to provide you with guidance in navigating through this new and challenging area.  In addition to helping you understand the details and advising you if this program can fit into your investment strategy, we also have relationships with various sponsors and service providers who can offer you opportunities with various funds that they have established.  We also have relationships with law firms who can evaluate that the funds are structured in accordance with Treasury regulations.

Fairmount Partners August 2019: News

Fairmount is the most active M&A firm based in the Mid-Atlantic, with a national and international practice.  Since 2003, the firm has completed more than 215 transactions throughout North and South America, Europe, Asia and Australia.   Fairmount specializes in advising middle-market companies on sell-side, buy-side and capital placement transactions, and provides fairness opinions and strategic advice in the transaction context. 

  • Fairmount Partners represented GHO Capital in providing origination support and M&A advice as part of GHO’s portfolio company Quotient Sciences sale to global investment firm Permira. Based in London, GHO Capital is a leading European specialist healthcare investment advisor. The investment provides substantial new funding to fuel the next stage of Quotient’s growth.
  • Fairmount assisted longtime client ICON (Nasdaq: ICLR) as it continues to expand its investigative site business by purchasing a majority stake in MeDiNova Research, which operates a network of 33 sites in key markets in the UK, Europe, and Africa. Coventry, England-based MeDiNova Research is one of the largest site groups in Europe and will help ICON boost its geographic footprint and its patient recruitment capabilities while complementing its existing site network in the U.S., known as PMG Research, which it bought back in 2015. This is Fairmount’s 15th transaction with ICON.
  • Fairmount assisted Novasyte, the tech-enabled outsourcing experts for medical device and diagnostic manufacturers, as exclusive financial advisor to the company in a recently completed transaction. Founded in 2008 and based in Carlsbad, California, Novasyte offers innovative sales, clinical support, and field services for the medical device and diagnostic industries. The counter party has elected to not announce the transaction, or any details of the transaction, and as a courtesy we are not including their identity. Please go to www.novasyte.com for more information. 
  • Fairmount Partners represented Regulatory & Clinical Research Institute, Inc. (RCRI), in their sale to Covance, the drug development business of LabCorp® (NYSE: LH). RCRI is the leading clinical research organization, medical device consulting firm and strategic regulatory expert based in Minneapolis. RCRI has built a reputation for designing and implementing the most complex medical device trials, applying an integrated, regulatory-centric approach at every stage of medical device development. LabCorp®, an S&P 500 company, is a leading global life sciences company that is deeply integrated in guiding patient care, providing comprehensive clinical laboratory and end-to-end drug development services. 
  • Fairmount Partners advised Goodwin Biotechnology, Inc. in securing the Company’s first outside financing with growth capital to help fund its next stage of expansion including quadrupling capacity – particularly for commercial manufacturing. Goodwin is a full GMP, FDA-registered biopharmaceuticals CDMO that offers a fully integrated Single Source Solution™ from Cell Line Development, Process Development including Bioconjugation, Scale-Up, cGMP Contract Manufacturing and Aseptic Fill/Finish of mammalian cell-culture derived life-saving monoclonal antibodies, recombinant proteins, vaccines, and Antibody Drug Conjugates (ADCs). The investment was made by Signet Healthcare Partners, a New York based growth equity firm specializing in healthcare investments. This is our second transaction with the team at Signet.
  • Fairmount Partners represented Versify Solutions in their acquisition by MCG Energy Solutions. MCG’s rapidly expanding role in the North American energy software industry is furthered by the Versify acquisition, which is MCG’s fourth major acquisition since 2017.  Versify Solutions provides a suite of web-based software-as-a-service (SaaS) applications for Energy, Utility and Industrial companies. Versify’s products alleviate the stress and pressure of operational and commercial performance and transition it into operational and commercial excellence! We help eliminate the frustration and difficulty associated with managing complex business processes and operations across a multitude of assets, regions and stakeholders.
  • Fairmount Partners represented Duck Donuts Franchising Company, the franchisor operation supporting the Company’s Duck Donuts franchised locations, in closing on a credit facility with Centric Bank.  Duck Donuts®, one of the nation’s fastest-growing donut franchises in the U.S., known for serving Warm, Delicious and Made-to-Order! ® donuts, was founded in Duck, North Carolina by Russ DiGilio in 2006. Centric Bank (www.centricbank.com) is headquartered in south central Pennsylvania and remains the leader in organic loan growth in central Pennsylvania.  A locally-owned, locally-loaned community bank, Centric provides highly competitive and pro-growth core financial services to businesses, professionals, individuals and families.

Design, planning, and governance – the three pillars of RPA success

Contributed by Cigniti Technologies.

A robot, by definition, is a machine that mimics and replicates human actions to automate certain activities. Robotic process automation or RPA is a robotic software that employs machine learning to study the exact steps taken by a manual resource to fulfill a task and then perform the same task at much faster pace and much better efficiency.

The manual steps act as the data on which the RPA software feeds and executes the desired action with precision. Its automation capabilities make it capable of performing about 50-60 tasks every day, equivalent to the work of up to five full-time employees. The speed and power of RPA help enterprises achieve scalability and flexibility in production, enabling them to deliver value to their customers at an accelerated pace. The eradication of need for human intervention eliminates the possibility of human errors, thus, offering high level of accuracy in process completion. By reducing the required manual labor and manhours, RPA yields a cost-effective, resource-efficient solution for tedious processes.

RPA is vital for repetitive business processes that are essential but eat valuable time of employees, leaving them exhausted and burnt out to focus on higher priority tasks. Ideal for standard, rule-based steps, RPA is primarily used by the modern enterprises to automate mundane processes such as data entry and validation, record maintenance, calculations and transactions, and more. While RPA brings about 25-50% reduction in overall costs, enterprises should formulate a fitting strategy to guarantee a successful deployment. This demands consideration of three key areas that define the viability of an RPA strategy.

Planning

It is not feasible to automate everything. Human cognition is irreplaceable, and since RPA is only suitable for standard, iterative processes, it is critical to first lay out a detailed plan of why to automate, what to automate, how to automate, and when to automate.

It is required that all the processes are segregated on the basis of how much time does each of them consume. Doing so provides complete visibility of the existing processes as well as time spent per process. Such end-to-end visibility comes handy in prioritizing all the processes as per the value add to the overall business goals. Once the tedious processes are identified and prioritized, they should be standardized in order to ensure proper automation using RPA, as it cannot work optimally on those processes that have additional variables beyond the pre-defined “if, then, else” rules.

Design

With a thorough plan and process visibility, it becomes easy to analyze and determine which set of RPA tools, platform, framework, and infrastructure best fit the identified processes. The RPA architecture should be designed while considering both the process goals and the organizational goals, such that they are in tandem with each other and help organization progress on the optimization scale.

Designing an RPA architecture needs a meticulous strategy that encompasses multiple components such as robotic components library, execution data, logs, and infrastructure, software bots, configuration settings, analytic data, tools and applications, configuration management, and compliance guidelines.

Governance

To make sure that the execution path stays on track of the determined plan and design, governance is crucial. Establishing a Robotic Process Automation Center of Excellence (RPA CoE) enables enterprises to integrate the RPA strategy with the defined processes in such a way that it not only helps achieve accuracy and efficiency, but also allows organizations to scale and succeed in their goals.

Test Automation with RPA

With the advancements in the field of AI, machine learning, and natural language processing (NLP), RPA looks even more promising in software testing scenario as it dons the hat of “Cognitive”.

The current IT landscape is mandating adoption of Agile & DevOps methodologies. For enterprises striving to excel in terms of speed, efficiency, and quality, test automation is imperative. As a majority of testing processes are iterative, RPA fits the picture perfectly when formulating a test automation strategy.

Industrial Development Levels Make Dramatic Jumps

Wayne, PA (July 17, 2019) — Newmark Knight Frank (NKF) released its second-quarter 2019 industrial market reports for Greater Philadelphia and the I-81/78 Corridor. New supply was the foremost topic as the total construction pipeline across the two markets increased by 5.4 million square feet. Also, notably, the I-81/78 Corridor realized a rare quarter of negative absorption. However, market activity indicates overall fundamentals in the two regions will remain strong throughout the remainder of the year.

In the second quarter of 2019, the development pipeline in the I-81/78 Corridor industrial market expanded to a record-breaking 18.6 million square feet. Although there are millions of square feet of tenant requirements in the market, the decade-long streak of positive absorption finally broke this quarter due to struggling national retailers closing regional distribution centers. 1.1 million square feet of negative absorption was recorded, and 2.1 million square feet of new speculative inventory delivered vacant. As a result, vacancy jumped from 6.3 percent to 7.1 percent quarter over quarter, its highest measure in three years. The Central Pennsylvania submarket was responsible for the largest share of negative absorption with Sears and Kmart closing warehouse facilities in the region. The Lehigh Valley submarket accumulated 337,211 square feet of new tenancy driven by third-party logistics firms and maintained its standing as the epicenter of new development, with more than 6.5 million square feet of construction underway. In Northeastern Pennsylvania, the supply pipeline nearly doubled this quarter, from 3.5 to just under 6.5 million square feet, the highest quarterly construction total on record for the submarket. Speaking on the subject of this substantial increase, NKF Executive Managing Director Jim Belcher noted, “Warehouse users want to be in the Lehigh Valley, but the tightening labor supply is a real issue. This is starting to drive developers and tenants up into Northeastern Pennsylvania.”

Major big-box occupancies are slated to occur next quarter, which will eclipse the negative absorption sustained in the second quarter and ensure the Corridor market concludes the second half of the year on a positive note.

In Greater Philadelphia’s industrial market, 2.4 million square feet broke ground in the second quarter, driving the supply pipeline up to 7.3 million square feet, a five-year high. There was construction underway in every one of the eleven counties that comprise the tri-state regional market, with the Southeastern Pennsylvania counties responsible for the largest share. Commenting on the expansion of the construction pipeline, NKF Managing Director Justin Bell said, “the majority of Southeastern Pennsylvania’s warehouse inventory was built before 1980. This new supply of efficient, high-bay space will be a boon to the market’s warehouse users.”

Average asking rents skyrocketed in the Greater Philadelphia industrial market this quarter reaching $6.33 per square foot, up almost a full dollar from last quarter. This was largely a function of newly established rates on R&D/flex space at the rebranded and repositioned Discovery Labs complex in the Philadelphia suburbs.

Occupancies in recently completed warehouse space predominantly drove the quarter’s net absorption, totaling 1.8 million square feet. Market-wide vacancy, down 30 basis points from the first quarter to 5.1 percent, is expected to hover in the low 5.0 percent range through the rest of the year, while pent-up demand in the market for modern logistics space continues to drive the absorption of new additions to the inventory.

In the Southern New Jersey industrial market, ecommerce giant Amazon yet again represented the largest quarterly move-in, taking possession of the 650,000-square-foot warehouse at 240 Mantua Grove Road upon its completion. Aside from the development focus on the warehouse sector in South Jersey, a significant manufacturing project was launched in the market this quarter: ResinTech broke ground on a $130.0 million global HQ in Camden County, which will be used to consolidate multi-state operations when complete in 2020. Moving westward into the New Castle County market, available industrial space is as scarce as it can be with vacancy at 2.7 percent in the second quarter. This tightness has driven average asking rents beyond $5.00 per square foot for the first time ever.

About Newmark Knight Frank
Newmark Knight Frank (“NKF”), operated by Newmark Group, Inc. (“Newmark Group”) (NASDAQ: NMRK), is one of the world’s leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF’s 16,000 professionals operate from approximately 430 offices on six continents. NKF’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration and facilities management. For further information, visit www.ngkf.com.

Discussion of Forward-Looking Statements about Newmark Group
Statements in this document regarding Newmark Group that are not historical facts are “forward-looking statements” that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. Except as required by law, Newmark Group undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see Newmark Group’s Securities and Exchange Commission filings, including, but not limited to, any updates to such risk factors contained in subsequent Forms 10-K, 10-Q, or Forms 8-K.

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