For decades, investment bankers have tended to focus on larger enterprises and for good reason, because there are larger fees associated with the Fortune 500 clientele. The chance to take a glitzy, high-growth company public is another perennial lure.

But in the 1980s and even more so in the ’90s, boutique investment shops have been cropping up in Los Angeles. They have discovered a lucrative market among the region’s vast sea of fast-growing, middle-market companies.

The Economic Development Corp. counts more than 220,000 business enterprises in Los Angeles County most of them privately held. With so many companies, there are scores of hidden gems that need financing to make acquisitions, or that have “exquisite” strategic value to other, larger acquirers, said Fred Roberts, president and founder of F.M. Roberts & Co. Inc.

“This has proven to be an extraordinary marketplace,” said Roberts, a former Lehman Bros. banker who started his own shop here in 1980. “There are many companies which are unique, which have products or franchises which are extraordinarily valuable and that has been our strength, the high-level strategic advice.”

Recently, Roberts has engineered deals on behalf of Los Angeles-area companies such as Koo Koo Roo Inc., the restaurant chain, House of Fabrics Inc., the cloth retailer, and Seda Speciality Packaging Inc., a plastic-bottle manufacturer.

Roberts is quick to point out that most of his clients, unlike Koo Koo Roo or House of Fabrics, have superb track records in growth and earnings: “In the middle market in Los Angeles, you are dealing with companies with real earnings, real growth, selling for solid multiples,” he said.

Even a Koo Koo Roo or House of Fabrics, which were financially troubled when they approached Roberts, “have tremendous strategic value for other companies. They had unique assets,” he said.

Other investment bankers concur that L.A. is loaded with valuable business assets. The region’s middle-market economy is so big, and there is so little competition from giant investment bankers like Merrill Lynch or Morgan Stanley Dean Witter, that a very good living can be had fishing for medium-sized paydays.

“For an investment banking shop like ours, Los Angeles is perfect,” said Russ Belinsky, principal at Chanin Kirkland Messina LLC in West Los Angeles. “There are many, many middle-market companies, which need and desire sophisticated investment banking service, but which a Goldman Sachs does not find appealing.”

Proof of the pudding? Since 1990, Chanin has grown from “three people to 25, and I think we will go over 30 professionals next year,” said Belinsky. Other local shops, such as Barrington Associates in Brentwood or Houlihan Lokey Howard & Zukin in Century City, have similarly grown in the 1990s, fed in the main by a steady diet of Southern California middle-market companies that were in need of merger advice or private financing for growth.

These high-growth companies can serve either as tempting takeover targets or as a platform to launch industry consolidations, said Belinsky. “In aerospace (manufacturing), there is consolidation going on, and in the service industries,” he said.

The fact that Los Angeles never really developed a solid cadre of regional investment banking firms like the Bay Area means the middle-market field remains pretty much wide open.

“You still have this weird thing that there are no major regional (securities) firms here,” said Dick Israel, of Dick Israel Associates in Beverly Hills. “But there are lots of closely held companies being offered for sale. And at decent (reasonable) prices.”

Many Southern California companies were launched after World War II, often by veterans or others who settled here from other parts of the country. The fast-growing population provided the perfect incubator for growth companies. In the ’90s, the people who founded those companies have been reaching retirement age and looking for an exit strategy. Another group of fast-growing private companies have been formed in the past 15 years often in the high tech sector.

In the world of Los Angeles middle-market companies, growth rates of 15 percent to 20 percent are common when the economy is strong and that’s the sort of growth craved by public companies looking for acquisition targets in their battle to post quarterly jumps in profits.

“In the mergers-and-acquisitions world, you have a lot of companies now looking for strategic add-ons (acquisitions). There is no shortage of deals to be done in Los Angeles, if the management of a company is good, and the financial reporting is solid,” said Israel.

While the number of boutique investment banking shops in Los Angeles is unquestionably growing, they do still have a tendency to be small often one-person operations.

“It is relatively easy for an investment banker from a Morgan Stanley or Goldman Sachs to hang out their own shingle, and do two or three deals a year,” said James Freedman, managing director and chairman at Barrington Associates, which is focusing on the huge middle market. “But it is a lot more difficult to actually build an investment banking company that will endure.”