Northrop Grumman Corp. Unocal Corp. Occidental Petroleum Corp. Hilton Hotels Corp. Computer Sciences Corp. SunAmerica. DaVita Inc. Times Mirror Corp.
All names of corporate titans past in Los Angeles. But each was also a large-cap, publicly traded company with multibillion-dollar-revenue; together they dominated the top ranks of the Business Journal’s public company lists for years.

But today, none is to be found on those lists. They were either acquired by out-of-state companies or moved their corporate headquarters away from the region. (This year’s list begins on the following page.)

Other companies have taken their place at the top of L.A.’s public company domain, especially real estate firms, including American Homes 4 Rent, Douglas Emmett Inc., Rexford Industrial Realty Inc. and Kilroy Realty Corp.

But these companies are smaller and generate far less revenue than their predecessors. And as a result, cumulative revenue for the biggest firms on the Business Journal’s public company lists has stagnated over the past 20 years. In 2002, the inflation-adjusted cumulative revenue of the top 20 companies on the list as ranked by market cap was almost $220 billion. This year, the corresponding figure is $211 billion – about 4 percent less.

“As the big-revenue companies have left, the companies replacing them are much smaller, which has led to a flattening of revenue,” said Larry Kosmont, a downtown-based corporate-location consultant who also publishes a periodic report comparing the costs of doing business in various cities throughout the Western United States.

Hitting wall on growth

Kosmont cited two reasons for the exodus of big-revenue companies: the high cost of doing business in the region – especially for larger companies – and the desire to be located closer to key markets and customers.

“California is good at attracting companies on the grow, but when they hit a critical mass of size and activity, they tend to look elsewhere to cut costs,” Kosmont said.
Often, he added, some triggering event prompts the relocation: a lease is expiring or an economic slowdown forces more attention on costs. And the Southern California region, with its long history of high costs of doing business – from the costs of land and labor to high corporate and business license taxes – doesn’t figure favorably in these considerations.

In other instances, however, cost is only part of the equation, Kosmont said. The other factor is “locational centrality,” or the desire or need to be closer to major customers or markets.

Both Computer Sciences and Northrop Grumman moved their headquarters to Falls Church, Virginia, to be closer to their biggest customer: the federal government. Computer Sciences moved from El Segundo in 2008 while Northrop Grumman moved from Century City in 2011.

Three years after that, Occidental Petroleum moved its headquarters from Westwood to Houston, the center of the nation’s oil industry.
More recently – just last year – engineering and infrastructure giant AECOM moved its headquarters from downtown Los Angeles to Dallas. The company cited a deep talent pool available in north Texas. But Kosmont noted another potential factor: lowering travel costs.

“North Texas happens to be very centrally located, so when an AECOM executive hops on a plane to visit a client or project site, it’s never more than a three-hour flight,” he said. “That means no more entire days wasted on traveling within the U.S.”
The same concept applies for major-revenue, publicly traded companies that distribute and sell their goods across the nation, he said.

One example of this was dialysis company DaVita’s 2009 move from El Segundo to Denver. According to DaVita’s press release at the time, Denver’s “geographic location is ideal for a company with facilities and operations spread across nearly every state in the country.”
With the pandemic, a new factor entered into this equation: the rise of work-from-home.

“As to larger companies leaving to be replaced by companies with more modest revenues, I think this speaks to the ability of large companies, given the fundamental shift in work-from-home, to be able to change physical locations, take advantage of tax-breaks and regulatory relief from other states, and be able to maintain a similar labor profile,” said Sahak Manuelian, managing director and head of equity trading at downtown Los Angeles-based Wedbush Securities.

Losing the merger derby

Corporate relocations are only part of the picture. The other major component is mergers and acquisitions. It seems that over the years, acquisitions involving publicly traded companies atop the Business Journal’s public companies lists have been mostly a one-way street: the companies here tend to get acquired by other companies outside the region instead of companies here buying similar-sized firms headquartered elsewhere.

Among the local companies that were acquired in this way were: Atlantic Richfield Co. (bought in 2000 by London-based British Petroleum – now bp); SunAmerica (purchased in 1999 by New York insurance giant American International Group Inc.); and Pacific Enterprises, the downtown Los Angeles-based parent of Southern California Gas Co. that in 1998 was acquired by San Diego-based Sempra Energy.

But less frequent have been purchases going the other way. There have been only two prominent examples involving large-cap companies in Los Angeles buying similar-sized companies and growing substantially larger. One was Northrop Grumman’s 2001 purchase of Woodland Hills-based Litton Industries, though that local focus ended a decade later when Northrop moved to Virginia.

The other purchase was Activision’s 2008 acquisition of Irvine-based Blizzard Entertainment, resulting in the combined company being named Activision Blizzard Inc. But that local focus, too, may be about to end: Redmond, Washington-based Microsoft Corp. announced in January that it intends to buy Activision Blizzard for $69 billion in cash, though that deal is still pending.

Smaller revenue replacements

As several large-cap public companies have departed from the list, others have moved up to take their place. But many of these large-cap companies are in industries – or have business models – that tend not to generate multibillion dollar revenues. These include real estate firms American Homes 4 Rent, Rexford Industrial Real Estate and Kilroy Realty.

Rexford and Kilroy reported 2021 revenue of less than $1 billion, while American Homes’ revenue came in at $1.3 billion. That contrasts with Occidental Petroleum’s $20 billion-plus revenue when it moved out in 2014.

“These are more high-end specialty service-oriented companies that are higher-margin businesses that can afford to pay the high salaries that allow their employees to live in the Los Angeles region,” Kosmont said. “But they just don’t have the same sales volume that companies producing goods do. So their revenues are smaller – not small, just smaller – than the companies they replaced,” he added.