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OVERVIEW

The 25 fastest-growing private companies in Los Angeles are posting revenue gains averaging 211 percent reflecting the region’s economic rebound.

The tripling of revenues for these top-25 companies over the 1994-96 period, on average, is one of several major findings in the Business Journal’s third annual List of the 100 fastest growing private companies in L.A. County.

The 100 companies collectively generated $11.1 billion in 1996 revenues and currently employ 49,583 people. In just the last three years, they have added more than 20,000 new jobs to their payrolls.

“This List pretty much mirrors what we see going on in Los Angeles,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

“This diversity in the economy is a blessing. If you have an economy dependent on a couple of basic industries, when they go down, the whole economy goes down with them. We saw this with our recession,” he said.

Adibi said the industries represented on the List are primarily those with a reliance on outside economies.

“When we came out of recession in the second quarter of 1994, our growth was not fueled internally,” he said. “It was largely export-driven: exporting to other countries and to other parts of this country.”

The highest concentration of fast-growing companies one in four is not found on the Westside or in the San Fernando Valley, but in the San Gabriel Valley.

“People underrate the San Gabriel Valley,” said Jack Kyser, chief economist with the Economic Development Corp. of L.A. County. “That area is doing extremely well. The industrial vacancy rate is under 4 percent.”

South Central Los Angeles, not viewed as an economic stronghold, is home to 13 companies on the fastest-growers List, more than the 12 each for the San Fernando Valley and the Westside.

“That whole area has traditionally been the manufacturing center of Los Angeles,” said Rohit Shukla, chief executive of the Los Angeles Regional Technology Alliance, a non-profit group formed to promote the interests of the technology community.

The fact that fast-growing South Central companies are heavy in manufacturing is significant because that sector creates a “ripple effect” as dollars it generates circulate through the economy.

Fifteen of the companies on this year’s List make and distribute industrial products.

“People have been talking as if new media and entertainment are the only game in town and the Westside and the San Fernando Valley are the only places to be,” said Kyser. “With this List, the real L.A. strikes back. The non-glamour sections of the county’s economy have really been racking up the gains.”

This year’s List of fastest-growing private companies gives a window into the region’s economic recovery, because the businesses are ranked by revenue growth from 1994 when the region’s economic recovery began through 1996. It includes companies with at least $10 million in 1996 revenues, thereby screening out volatile small companies.

The figures point to another surprise: an unexpectedly high number of large companies running contrary to the notion that large firms are often stodgy and small firms exhibit more explosive growth.

Seventy-eight companies on the List had 1996 revenues of at least $50 million; 32 generated revenues in excess of $100 million.

Indeed, the average 1996 revenues of companies on the List was $111 million, with a median of $70 million.

Furthermore, 70 percent of the companies on the List have at least 100 employees, with the median employee count at 168 people.

In short, many of these fast-growing companies are major, established enterprises and not young startups.

“Larger companies have been able to tap into foreign markets and have nationwide distribution networks. Many were able to thrive even when smaller companies whose fortunes were closely tied to the local economy were not,” said Adibi.

These companies also have been hiring aggressively, although not at rates as rapid as the revenue growth.

Overall, the 100 companies boosted their employment levels by 70 percent between 1994 and 1996, translating to about a 23 percent annual growth in work force. By contrast, overall growth in revenues between 1994 and 1996 was 80 percent, or about 40 percent a year.

“The fact that these companies are adding employees at a slower clip than their revenues are rising indicates a significant increase in productivity,” Kyser said. “In the long run, that is very healthy for the economy.”

The growth in productivity and technology in the workplace, though, accounts for only some of this gap. Many of these business owners, Adibi said, have the painful recession of the early 1990s still fresh in their minds and have been slow to restaff.

“It’s a little disturbing to see that employment growth hasn’t kept up with revenue growth, but I have a feeling that will change for many of these companies. Once they reach a certain size, they will simply need more people,” Kyser added.

That was the case for Vernon-based Machinery Sales Co., which has carved out a niche in the machine tool distribution arena. The company grew its revenues 96 percent between 1994 and 1996.

Chairman Richard Rivett attributed the growth to the recovering aerospace industry, the company’s focus on computer-operated machines and stepped-up marketing efforts.

“We turned around in 1994. We were laying off people and downsizing for years until one morning we started hiring and upsizing. It happened that fast,” Rivett said.

Going after a market niche is a common theme among the companies on this year’s List.

“We found a nice little niche and pushed the boundaries of that niche ahead of everyone else,” said Richard Gordon, chairman of R.j. Gordon & Co. Inc., a Los Angeles-based credit card processor and management consulting firm that is the No. 1-ranked company on the list, with a seven-fold growth in revenues from 1994 to 1996.

Looking at the rest of the 10 fastest growing private companies, five are in the computer industry. Overall, 22 of the 100 companies are in the technology sector, the highest representation of any industry.

“That’s not surprising, since technology underlies much of what is done in the Los Angeles area,” said Shukla.

But the technology sector does not dominate L.A. County’s economic growth, as it does in the Silicon Valley. Among the other sectors well-represented on the List are:

– industrial products (with 15 companies on the List);

– business services (10 companies);

– apparel and textiles (10); and

– food products and services (9).

The List also includes companies in health care, engineering, construction, automotive and distribution.

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