Despite Slowdown, Holding Company Still Leads Pack.

How can a company see its rate of growth plunge dramatically and still be expanding faster than any other private company in Los Angeles? Ask Platinum Equity.

For the second year in a row, the Century City-based financial holding company tops the Business Journal list of the 100 fastest-growing local private firms, with its revenues soaring from $55.2 million in 1997 to $792.1 million in 1999. While that translates to an astonishing three-year growth rate of 1,335 percent, it actually is slower than last year, when the company posted a truly incendiary three-year rate of 13,900 percent.

But that doesn't faze founder and Chief Executive Tom Gores, who continues to build his firm by identifying under-performing companies that often are divisions of larger entities, snapping them up and revitalizing them.

"In today's world, a lot of people are buying valuations," he said. "We've tried to stay away from that. We try to add value. Many times, companies are under-managed, both financially and strategically. We go in and add a lot of value to our portfolio companies."

That portfolio now consists of 17 companies with combined assets of $1.2 billion. Virtually all are technology companies, many of them in the telecommunications sector. Instead of pursuing relatively new companies that may have red-hot projections for short-term growth but questionable long-term prospects, Platinum. Equity looks to carve out a piece of business that doesn't quite fit with the plans of the company that owns it. Platinum Equity sends in a team to look at operations and management, and turns it around for a huge profit.

"We're not in the start-up stage," Gores said. "(Target companies) are more established. They could be on the cusp of going cutting edge, of making a decision to go that way."

Firm draws praise

It's too early to tell how successful its strategy will ultimately be, but the company has raised eyebrows in the local investment community with its rapid rise since being founded in 1995. The firm's speed in ramping up and the choices it has made so far have drawn praise from its peers.

"Part of what has made Platinum successful is their ability to carve out this niche," said Scott Christopher, vice president in the private banking business at J.P. Morgan & Co., which serves as Platinum's private bankers. "They know the (technology) business very well, and they've proved they can execute in that arena. They've also shown they can work with large companies... that want to know that whoever is buying their subsidiaries is going to take care of their customers and their people."

Of course, any investment firm should ultimately be judged not on the size and number of deals entered into, but by the returns on those investments. So far, Platinum has sold six of its acquisitions, with return on investment running into "the hundreds of percent," Gores said.

"We're getting a hell of a return," Gores said.

One portfolio company he holds up as a model of his firm's success is Milgo Solutions of Florida, which Platinum bought from U.K corporation Racal Electronics Plc. in 1998. Racal was purchased for $47.5 million in a deal that analysts described as a bargain, especially since only $12.5 million was in cash, with the rest being payable as royalties on future sales over 10 years.

When Platinum bought Milgo, the company had lost $300 million over its previous two years. Now, the company's annual revenues are around $300 million and net income is around $50 million. Gores says Milgo has attracted attention from potential buyers, and while he wouldn't say whether a deal is in the making, market estimates for the data communications business is "conservatively valued" at more than $350 million.

"It was a major turnaround," Gores said. "The core of the business was great. In four months, we had it turning a profit. There's a high degree of interest in the market for Milgo."

Boosting value

Platinum looks for companies that can be put together with other outfits to create greater value. Two years ago, it bought communications firm TimePlex Group from a Swiss venture capital firm and folded it into Milgo. In December, Platinum bought Matrix Telecom from NetLojix Communications Inc. for an undisclosed sum and is merging it with DCA Services, another billing and back-office solution provider, which was purchased from WorldCom in 1997.

Last month, Platinum Equity acquired three companies that had been units of San Antonio-based Billing Concepts Corp. for $80 million, $52.5 million of which was in cash. The companies -- a telephone billing operation, a call center and a software division -- were sold in a deal that took less than 45 days to complete.

"It was incredibly fast," said David Tusa, Billing Concepts' chief financial officer. "This was affecting roughly 1,200 employees; it had to be done behind the scenes. The last thing we wanted was for the word to get out. (Platinum) had the funds immediately to do the deal. We didn't have to worry about it falling through because of lack of cash. They have a reputation for getting a deal done. They stood by everything they said they'd do. They're very sharp, very savvy people."

Gores was born in Israel and moved with his family to Michigan when he was a child. He graduated from Michigan State University and worked. at selling and developing software. After moving to Los Angeles in the late 1980s, he worked for several years with his brother Alec at Gores Technology Group, another local private investment firm, then left to start Platinum Equity with his own funds.

The two brothers remain close, but unbeknownst to each other were competitors to acquire troubled educational. software developer Learning Co. from Mattel Co. earlier in the year. The brothers only learned about the other's bid after Gores Technology successfully snapped up the company from Mattel, Tom Gores is reluctant to discuss any sibling rivalry but maintains he is content that he didn't make the deal.

"The night the deal was getting done, (Mattel CEO) Bob Eckert was on the phone asking if we'd change the deal," Gores said. "I made a very, deliberate decision that I would make a certain kind of deal and walk away if it didn't make sense to me. But I think (Gores Technology) will do fine with (Learning Co.)."

No.2

U.S. Marketing & Promotions

Torrance

Business: Field and mobile marketing

Revenue Growth: 737%

THE clever advertising and marketing campaigns led by U.S. Marketing & Promotions belie the agency's humdrum name.

The Torrance-based agency practices guerilla marketing for such high-profile clients as Hershey's Foods, Hormel Foods and Procter & Gamble Co.

"We focus on delivering sales without cutting the brand's price," said company President Michael Napoliello. "That's a strategy whose time has come. Brand equity is key today."

Napoliello cited USM&P's successful product launch for Procter & Gamble's Dryel home dry-cleaning product as a case in point. The launch, which included demos in malls across the country, generated $200 million in sales of Dryel since the campaign began over a year ago, he said.

"It's all about getting people to fall in love with the brand and be willing to pay a fair price for the brand," Napoliello said.

Whether it's through event marketing, Internet marketing or unusual product demos, the approach has been working, which is why this will be the last year that USM&P makes it on any fastest-growing private company list.

In June, USM&P was acquired by advertising and public relations giant Omnicom Group Inc. Napoliello and co-founder Jason Moskowitz have agreed to continue operating USM&P autonomously and will still be "masters of our destiny," Napoliello said.

"It's the ultimate dream of any business owner," he said.

That dream began when Napoliello and Moskowitz sat next to each other in high school 20 years ago. The two would-be entrepreneurs launched a magazine targeted at the New Jersey Shore's teen crowd and managed to fill the publication with advertisements. That entrepreneurial spirit and knack for marketing has driven the success of USM&P.

Another key to USM&P's success has been its cautious approach to Internet marketing. "We think that the Internet is a great part of an integrated marketing plan, but it can't be a marketing plan in and of itself," Napoliello said.

The Internet did get a bad rap, he said, because too many businesses jumped into what was a hot trend.

"Following a market trend isn't the way to go to market," he said. "You put the Internet into your marketing plan only if it's appropriate."

-- Hans Ibold

No.3

Earl Jean Inc.

Los Angeles

Business: Apparel manufacturing

Revenue Growth: 700%

IN 1969, a writer for American Fabrics magazine declared, "Denim is one of the world's oldest fabrics, yet it remains eternally young."

Indeed, denim jeans have never fallen out of fashion since their invention by gold miners in 1873. While jeans have morphed with different cuts and colors, they have remained a staple in global fashion and a hot product for a plethora of apparel makers.

One of the latest firms to make it big is Earl Jean Inc. The L.A. company was founded five years ago by the husband-wife team of Ben and Suzanne Freiwald and went on to introduce a new style of jeans that has caught and kept the eye of the fashion world.

The look -- dark, high-grade denim with a low rise around the waist and a boot cut -- was an affront to the style prevalent in the mid-1990s.

"When we began there was no dark denim on the market; everything was high-cut, and low-grade denim was everywhere," said Ben Freiwald.

Dissatisfied with the way those denim jeans wore and felt, Suzanne began designing her own jeans. When her few pairs of customized jeans were stolen at a coin-operated laundry, Suzanne and Ben were inspired to launch Earl Jean as a means of making more of her prized jeans. A lot more. And it didn't take long before the jeans were in great demand.

"We introduced a new paradigm in denim jeans, and now everybody is on it," Ben said. "The world has come our way."

So has the revenue. Earl Jean generated revenue in 1999 of $15.2 million, up from $1.9 million in 1997. The company is projecting $30 million in revenue for this year.

That Earl Jean found a niche at all is remarkable, given its designs are targeted at a narrow customer base of slim, long-limbed women. Also, Suzanne intentionally left off any label or patch that would identify the brand.

But these attributes, along with a price tag of about $110 per pair, gave the brand a kind of exclusivity that helped generate press coverage and positive word of mouth. Today, women around the world wear the jeans, which are especially popular in Japan, Earl Jean's biggest market.

"We're still finding new markets geographically," Ben said. "The cut is still shocking in some places where they're at a different spot in the evolution."

In L.A., the look is very hot. Nordstrom, Saks Fifth Avenue, Neiman Marcus, Barneys New York and many small boutiques stock the jeans. Riding on the popularity, Earl Jean opened its first retail store in Larchmont Village last month and has already sold $60,000 worth of product there.

-- Hans Ibold

No. 4

Security Finance Associates

Pasadena

Business: Security alarm systems

Revenue Growth: 692%

IF you ask city officials why the crime rate is so low, they will likely cite their crime fighting and community outreach programs. But ask Security Finance Associates President Tony Smith the same question, and he will tell you: it's the security systems.

Smith's Pasadena business is part of the vast security alarm industry, which includes 14,000 dealers across the country. In a process known as account aggregation, Security Finance buys alarm service accounts from small installation companies, then bundles and resells them at a profit to larger alarm service companies.

"We're in a rapidly growing business with a. lot of opportunities," Smith said.

Account aggregation is profitable because smaller companies prefer to focus installing alarm systems. They can generate quick cash from selling the service accounts, and use that cash to buy more alarm systems for installation. Large companies, on the other hand, prefer to focus on handling client calls and dispatching police when alarms are triggered. They can quickly build their base of accounts by purchasing bundles of existing accounts from Security Finance.

The viability of the account-aggregation niche is evident from Security Finance's revenues, which have skyrocketed in the four years since Smith founded the company in 1996. In its first year, the company aggregated and sold 4,000 accounts, generating revenues of $577,000. In 1999, revenue soared to $20.6 million.

Doubtless, alarms are in demand. About 18 percent of American homes now have some form of alarm system, up from 10 percent in 1995. To Smith, each one of the 14,000 national dealers is a potential client.

Smith is so convinced that security alarm systems have contributed to the drop in the crime rate that he recently hired a research group to conduct a study confirming that belief. The study is still underway. "There has to be some correlation," he said.

Smith should know. He has been working in the alarm industry since 1980, when he began aggregating large accounts, which he later resold to a national company. He then worked as an acquisitions consultant for several small and mid-sized companies that were trying to sell or buy alarm accounts.

Smith is currently president of the California Alarm Association and a member of the board of directors of the National Burglar and Fire Alarm Association.

These days, Smith is looking for further growth through mergers and acquisitions.

"Our mergers and acquisitions are picking up and that has increased our visibility," Smith said. "We're in the process of doing a nationwide dealer acquisition program, where we would own the alarm contracts."

-- Hans Ibold

No. 5

Supplier Quality Assurance Services Inc.

Rolling Hills 

Business: Supplier quality assurance providers

Revenue Growth: 643%

THE success of giants is often due to the behind-the-scenes efforts of little guys working in the shadows. And such is the case with Supplier Quality Assurance Services Inc.

The small, privately owned company in Rolling Hills is playing a pivotal role in the operations of such giants as Boeing Co., DaimlerChrysler AG, General Electric Co. and Lucent Technologies Inc.

As its name suggests, SQA Services assures that the international suppliers of everything from fiber-optic cables to aircraft parts are providing the best possible products to SQA's clients.

SQA's quality checks are in high demand, checks that are performed by hundreds of SQA technicians worldwide.

SQA Services was founded in 1995 by Jim McKay, a veteran of the quality assurance service industry. He even takes credit for inventing (in the early 1970s) the concept on which the industry is based.

At that time, the company McKay launched offered a basic guarantee to its clients: Get what you pay for and get it on time.

Toward that end, McKay set up an international network of quality assurance experts, a network that today has expanded into 50 countries. Led by McKay's son, CEO Michael McKay, SQA has evolved into a kind of strategic partner to big business. Its success is evident from its revenues, which have rocketed from $700,000 in 1997 to $5.3 million in 1999.

"We're not just providing people," said the younger McKay. "We to improve the efficiency of managing your supply chain."

Consider the labyrinthine supply chain of a company like Lucent, maker of telecom equipment, software, integrated circuits and telecommunications power systems. Lucent has some 2,500 parts and equipment suppliers. Instead of Lucent sending its own staff to monitor and inspect the goods, the company counts on SQA to do the work.

Besides conducting inspections, SQA tells clients like Lucent where they rank vs. competitors in terms of efficiency and quality. It also advises clients on how much they should spend on quality supplies, and helps them find the best suppliers.

SQA has performed so well for its clients that much of the competition has either burned out or shifted businesses.

"We're the main show in town again," the elder McKay said.

"We're kind of in our own little niche right now," his son added.

That's not likely to change with companies like DaimlerChrysler calling on SQA to evaluate its entire quality assurance system.

Adding to SQA's success is the L.A. talent pool, which is remarkably strong thanks to the former defense industry.

At its headquarters in Rolling Hills, SQA employs 22 workers and contracts technical work out to around 250 "associates" scattered across the globe.

Hans I bold

No. 6

EPI Enterprises Inc.

Van Nuys

Business: General contracting

Revenue Growth: 564%

AFTER 30 years in business, Van Nuys-based EPI Enterprises Inc. has never been busier.

"We got a lot of large contracts with people that we've known," explained company owner James Amato. "Through referrals and all the good relationships we've built over the years, it sort of all came together at once."

For EPI, which does business as EPI General Contractors, "coming together" has meant revenues of $64.4 million in 1999, a remarkable boost from $9.7 million in 1997. Those numbers have been fueled by $30 million worth of projects at Loyola Marymount University.

Amato got his degree in civil engineering at LMU and has been doing business with the university since 1974. Projects that the company has done there include the $14 million Burns Recreation Center and the conversion of a former Raytheon Co. office building for use as office and classroom space, including a bridge connecting the building to the main campus.

In addition, Amato's company built an arts-and-technology building for Notre Dame High School, another of his alma maters.

EPI is also doing conversion work for the Teradyne Inc. expansion in the Conejo Valley and new construction in Calabasas and Westlake Village for Cypress Development Co., for the Amoroso family in Westlake Village and the Capstone Turbine expansion in Van Nuys.

Picking up the pace so rapidly has been possible thanks to the decision to bring in new staffers and partner with outside consultants, Amato said.

"We always had the capacity to do good construction work," he said. "We just never wanted to expand that rapidly, nor did we have the opportunity. It's a question of opportunity and also motivation."

It was also a matter of making fortunate personnel moves in a very tight job market.

"We were growing while we were acquiring these projects, and we've been very fortunate in that we've hired some extremely capable people," Amato said. "We brought on board a couple of very talented construction managers from other companies who enabled us to take this quantum leap."

Though EPI is building distribution facilities in Rancho Cucamonga and has built projects from San Francisco to San Diego, today most of its work is within easy commuting distance of the home office in Van Nuys -- a pleasant change at a time when things are so busy, Amato said.

"It's just that we've bad so much dam business here (in Los Angeles)," Amato said. "We haven't had to go very far."

Milo Peinemann

No. 7

Guidance Solutions LLC 

Marina del Rey 

Business: E-business development

Revenue Growth: 456%

TRADITIONAL brick-and-mortar companies are beefing up their presence in the cyber world, and that is driving the growth of Guidance Solutions LLC. Guidance helps such companies to more fully exploit e-commerce opportunities on the Internet.

"In our business, stuff either works or it doesn't. Successful projects lead to new business," said Co-Chairman Robert Landes.

Based on that barometer, lots of Guidance "stuff' seems to be working. For the second year in a row, Guidance is among the 10 fastest growing private companies in Los Angeles. Its revenues rose to $10 million in 1999 from $1.8 million in 1997.

Among the Marina del Rey company's clients are Venator Group's various chains (Foot Locker, Champs, and other athletic goods stores), MrsBeasleys.com, StreetZebra.com, Enutrition.com and, more recently, Adfusion.com.

Of course, venture capitalists' pullback from dot-com investing has constrained Guidance, which saw much slower revenue growth in 1999 than in 1998. (Its $10 million in 1999 revenue was up only 22 percent from $8.2 million in 1998.) So the company has shifted gears, emphasizing its role as a fee-for-service consultant or outsourcing company, and away from the strategy it had previously pursued, which emphasized working with companies in which it could also take an equity stake.

To grab lucrative deals with major brick-and-mortar companies, Guidance has restructured itself into divisions focused on areas such as retail, e-business and media and entertainment.

In late 1999, the company received a $48 million investment boost, making Landes confident that Guidance will achieve its goal of returning to profitability by the second quarter of 2001. He said the company decided in 1999 to take a new tack, investing heavily in infrastructure that has broadband capabilities, scalability, and can be put to use with multiple users and the "back-end" work that Guidance specializes in, such as databases.

"The industry is definitely in a lot of flux, but we feel we have the skill sets and we have a lot of cash in the bank to weather the storm," Landes said. "Amateur night is over. That's my quote. That's what I tell everybody. And Guidance is not an amateur company."

The new focus and heavy investment has translated into a slew of deals.

Guidance has entered into a new two-year deal to operate Web sites for the Venator Group's athletic stores; it has worked on Adfusion.com, an advertising business-to-business exchange, and Bridgepath.com, a temporary employment services site; and it is launching a venture with Chicago-based Allied Worldwide and its North American Van Lines called moveline.com.

In addition, Guidance has begun courting the big Hollywood studios. So far, that has resulted in a deal with Paramount Television.

No. 8

Milo Peinemann

Market Scan Information Systems Inc.

Westlake Village

Business: Car-leasing software

Revenue Growth: 454%

IT'S been almost 12 years since Rusty West wrote a software program that his father, Russell, could use to calculate deals for his Atlanta car-leasing company.

Sensing the huge potential of the software, the father-and-son team packed up their bags and moved to the nation's largest: car-leasing market, Southern California. In 1990, they founded Market Scan Information Systems Inc., which has since taken off in a big way.

It has been among the 10 fastest growing private companies in Los Angeles for the past three years: eighth fastest on this year's list, sixth last year and second the year before.

Market Scan provides car dealers and lending institutions with continually updated information about the latest lease financing deals being offered by financial institutions, and a software package that calculates which financing package would work best within specific customers' financial limits. And it gives car dealers - much of the company's customer base - the tools to make sure they're getting the profit margins they want.

Market Scan's car-leasing software propelled the company to $82 million in revenues in 1999, up from $14.8 million in 1997 and $5.2 million in 1996. That's a 454 percent increase since 1997.

It's not hard to see why business is so good: Car leasing has boomed, and with it the complexity of the financing packages being offered by lending institutions.

Market Scan's software is linked to a massive database operated out of the company's headquarters in Westlake Village that downloads, nightly information on the latest, financing being offered by lending institutions.

The software, calculates various leasing plans by factoring in variables such as the size of monthly payments, terms of the lease and even how much wear, and tear the car will likely endure.

"There are even programs that go down to whether or not they're a smoker or non-smoker," Rusty West said.

For lending institutions, the database is a tool to gauge the competition and to target the markets they're after. As leasing has become more popular and widespread, lending institutions have begun offering an increasingly wide range of financing options to get a piece of the action.

"The jewel in our crown is the database," West said.

But what has really driven the company's growth is the software introduced last year that calculates leasing deals on used cars which, unlike new cars, vary widely in value. Existing customers jumped on the new product.

"That really created a huge spike for us last year in our sales," West said.

West expects the company to see similar growth this year, thanks to a recently released software product that computes retail financing options for new-car sales.

West said, "Every dealership in the country, with some exceptions, is very active in retail finance."

Milo Peinemann

No. 9

NewMark Merrill Cos.

Tarzana

Revenue Growth: 383%

Business: Retail property investment

IF you own an entertainment complex anchored by a bankrupt theater chain, and you're struggling to figure out what to do with it, Tarzana-based NewMark Merrill Cos. might be happy to take it off your hands. But probably not for the price you could have gotten a year ago.

NewMark Merrill is the result of the May 1997 merger between David M. Frank's The Merrill Cos. and Sandy Sigal's NewMark Development Co.

Since then, NewMark Merrill's CEO Frank and President Sigal have been generating monster growth by developing new retail projects, acquiring existing projects in need of repositioning, and managing properties for third-party owners.

Frank attributes the company's 383 percent growth -- with revenues rising to $5.8 million in 1999 from $1.2 million in 1997 -- to good timing, a solid understanding of tenants' long-term goals, and strong relationships with major tenants.

NewMark Merrill now owns and manages more than 40 retail properties in California and neighboring states, Frank said.

"We were poised to get to the marketplace sooner than a lot of other people in this last economic shift," Frank explained. "We positioned ourselves well before this last economic boom."

The company has projects with Wal-Mart in Corona, Food 4 Less in Wilmington, department store Stein Mart in Las Vegas and Albertson's in Chino Hills.

But there's more to the company than new development. NewMark Merrill is aggressively moving to take advantage of the financial problems being experienced by major theater chains. The company is escrow to purchase two centers anchored by bankrupt multiplex chains, with plans to renovate and reposition the centers.

"You're obviously going to have to discount the creditworthiness of tenants," said Frank, who declined to name the centers.

Another recent acquisition is the 400,000-square-foot, grocery store-anchored Anaheim Town Square.

"It offered us the ability to redesign the shopping center and put on a new facade, together with increasing square footage," Frank said.

Frank said NewMark Merrill finds itself edging into a field where it is competing to acquire properties against companies such as Newport Beach-based Donahue Schriber and Carlsbad-based GMS Realty LLC.

Milo Peinemann

No.10

Team-One Staffing Services Inc.

Los Angeles

Business: Temporary employment services

Revenue Growth: 250%

AFTER working at a temporary employment company that burned bridges regularly with its corporate clients, Frank Moran decided to start his own firm -- and emphasize service.

But Moran's Team-One Staffing Services Inc. was not an immediate hit.

"In 1995, we were very broad-based," Moran said. "We weren't able to develop any expertise, so we weren't able to really deliver anything but a very simplified talent base."

But two years ago, Moran began to focus his efforts in areas where he felt larger, national staffing services were lacking: providing better-trained temp workers for whom employers were willing to pay a higher wage.

"We decided to become a highly reputable firm in Los Angeles," said Moran. "What we have done now is carve out a niche for us, for companies that want higher-performance talent and are willing to pay for it."

Thanks to that new focus, company revenues increased to $16.1 million in 1999, up from $4.6 million in 1997, a 250 percent increase.

The company's client list has included such diverse employers as Bank of America and the Los Angeles County Museum of Art, and those clients have, been involved in retail, entertainment, and financial matters, and more.

To get better performance from his staffers, Moran focuses as much on his temp workers as he does on his client companies.

Moran developed a benefits package that he says kicks in earlier than those at other temp companies. And Moran's benefits offer expanded coverage, in stages. If temp workers leave and then later come back, coverage picks up where it left off, so employees can build on their pre-existing benefits.

"They're equally important to us, and they sense this because they see how we care for them," Moran said.

On the client side, Moran said he has refused to take on too many accounts. And he has branched into "employee leasing," which involves employees receiving their benefits and paychecks through Team-One but effectively working full time at one particular client company.

But Moran attributes the growth of Team-One to the dramatic expansion of small and mid-size companies, which account for the bulk of his clients.

"Since they've done well, we've done well," Moran said.

Milo Peinemann