Achieving the rapid growth necessary to qualify for the Business Journal’s list of 100 fastest growing private companies is no easy feat.
Sustaining that growth year after year is even tougher.
So it may be no surprise that 51 businesses on last year’s list do not appear this year. That includes all of 2000’s top five companies.
The reasons are as varied as Southern California’s economy. Some businesses are still growing, but not at hyperspeed. Some aren’t growing at all. Some simply are no longer private.
Most conspicuous in its absence is the front-runner both last year and in 1999: Century City-based financial holding company Platinum Equity. After a stratospheric 13,900 percent two-year revenue growth rate through 1998 and a still remarkable 1,335 percent rate through 1999, the company decided not to furnish financial information about 2000.
“Providing rates of growth in percentage terms is not especially meaningful,” said company spokeswoman Rebecca Mack, “particularly when these percentage growth rates are from a very small base and compared year-over-year.”
Such concerns were not expressed in previous years, when the investment firm, headed by Tom Gores, came out of nowhere to quickly establish itself as a player in the tech acquisitions field. By 1999, its revenues had grown to $792.1 million.
Other companies had more straightforward reasons for not being around this time.
“Time ran out on us, so to speak,” said Tony Smith, president of Security Finance Associates Inc. in Pasadena, which last year was No. 4 on the list. The company’s business which was selling security alarm contracts, aggregating them, and then selling the bundle to a large security company and taking a profit on the spread tanked in 2000 when the company couldn’t handle the financing or volume.
After a two-year growth rate of almost 700 percent that saw revenue reach $20.5 million in 1999, “things collapsed mid-way through 2000,” Smith said. “It didn’t make sense to push the string, so to speak, so we got out of it.”
New direction
Security Finance has reorganized itself as a small investment firm for the security alarm business. The company made almost no money last year, and results are little better this year. But Smith says next year should be profitable.
“I’ve got to get deal flow back up,” he said.
Deal flow was not a problem for two of last year’s top five. In fact, things went so well that they are no longer independent.
Torrance-based promotional firm U.S. Marketing & Promotions was acquired by multinational Omnicom Group Inc. in June 2000 in an all-cash deal for an undisclosed amount. No. 2 on last year’s list, U.S. Marketing grew at a two-year rate of 737 percent, with 1999 revenues of just under $90 million.
“We started to get a lot of suitors,” said company co-founder and President Michael Napoliello. “We were about the largest company in our industry, and basically knew the best way to expand would be as part of a network.”
After entertaining various proposals, U.S. Marketing went with Omnicom, a $6 billion multinational media and advertising holding company. Business continued to grow in 2000, with revenues of $100 million.
But this year sales are flat.
“The economy is really lousy now,” Napoliello said. “One-million-dollar budgets are now $100,000 budgets.”
Even so, having access to Omnicom’s wide variety of Fortune 500 clients has been a boon.
Last year’s No. 3-ranked company, high-end women’s jeans manufacturer Earl Jean Inc., was purchased earlier this year by New York-based Nautica Enterprises Inc. for $45 million in cash and more than 1 million shares of stock. Founded in 1996, L.A.-based Earl Jean rapidly emerged as a leading luxury denim brand, with 1999 revenues of $13.8 million, a two-year growth rate of 700 percent. Last year, its net revenue more than doubled, to $28.9 million.
“The main reason we looked to be acquired was to take some of the risk off the table,” said co-founder Benjamin Freiwald, who last month stepped down as head of Earl Jean to pursue personal interests. His wife and co-founder, Suzanne Costas Freiwald, is still at the company as a designer. (Together, the Freiwalds hold about 3.4 percent of Nautica’s stock.)
“The brand needed to grow. We dreamed of having some retail operation of our own, and we couldn’t have afforded it on our own,” said Benjamin Freiwald.
Rolling Hills-based SQA Services Inc., a professional management services company with offices in Virginia, Tokyo and Sao Paulo, Brazil, saw its business take a hit starting in 1999, when revenues reached $5.3 million, a two-year growth rate of 643 percent.
“(This past year) hasn’t been a down year, but it hasn’t been great. Revenue didn’t grow to that (previous) extent,” said SQA President Michael McKay.
He said sales in 2000 were up from 1999, although he declined to be more specific, and predicted that 2001 revenue would be flat.
The changing fortunes of all five of last year’s most notables are likely to be further influenced by the prevailing economic uncertainty, but optimism prevails.
“Yeah, everyone says the economy is going to be down next year, but as I tell our staff, we help make the economy,” said Napoliello of U.S. Marketing.
