Powerhouses Of The New Economy.

The B.E.100s profit from rewriting the rules of American business

THESE DAYS, THE CHIEF EXECUTIVES OF THE NATION'S LARGEST black-owned businesses make it extremely clear that their companies will not be held back by convention or boundaries. As if to confirm this position, a symbolic and substantial newcomer has joined this year's BE INDUSTRIAL/SERVICE 100 list: Baton Rouge, Louisiana-based No Limit Enterprises. Debuting at No. 25, the $110 million urban entertainment empire is run by rapper/entrepreneur Percy Miller, better known as Master P. Christening himself "the ghetto Bill Gates," he has tipped his hat to old guard BE 100S pioneers like Motown by building his enterprise from scratch. But his feet are firmly planted in today's technology-charged business environment: he employs a crew of corporate-trained, financially savvy professionals to operate his far-flung ventures, which range from music and film to real estate and toy merchandising. In the process, Master P and company are staking their claim, rewriting the rules and raking in a lot of dead presidents.

BE 100s companies like No Limit have truly become powerhouses of the New Economy--ones driven by technological innovation, high productivity and soaring financial markets. In fact, many of the old-line companies in such mature sectors as industrial manufacturing and automotive sales are souping up their operations by going digital: hawking products and services via the Web.

Innovation has been made possible, in part, by the financial prosperity of the national economy, which grew at a rate of 4.1% in 1999. Consumer confidence continues to surge. The national unemployment rate is at an all-time low. Despite an uptick in consumer prices in mid-April, inflation is still virtually nonexistent. And, even though the Federal Reserve has hiked interest rates five times over the past year, the cost of debt capital still remains manageable for most business owners.

Yes, the 285 entities that comprise the largest black-owned businesses have embraced this New Economy with a vengeance. Take the industrial/service companies and auto dealers. Total sales for these 200 companies were $16 billion, a 14.3% increase from $14 billion in 1998. Between the two lists, there are 46 companies that grossed $100 million or more in revenues, up from 39 last year.

This year ends the triumvirate that has dominated the BE INDUSTRIAL/SERVICE 100 list for much of a decade: J. Bruce Llewellyn's Philadelphia Coca-Cola Bottling Co., John H. Johnson's Johnson Publishing Co. and Loida N. Lewis's TLC Beatrice International Holdings Inc. TLC, the one and only $2 billion concern to be listed among the BE 100s, will probably never rise to its former glory: its board voted to unlock the company's value by liquidating its assets.

One of the most significant recent developments has been the rise of information technology firms. In fact, the new leader of the industrial/service companies is St. Louis-based World Wide Technology Inc. (WWT), the $413 million distributor of technology products and services. The company was edged out by Mel Farr Automotive Group, the Oak Park, Michigan, mega-auto dealer with gross sales of $432.4 million, for the title of No. 1 black-owned enterprise in the nation. Observers will be watching this year to see if WWT, last year's Company of the Year, will eventually overtake the automotive conglomerate.

More black-owned businesses are strengthening their positions by entering the financial markets. For instance, Radio One Inc. (No. 29 on the BE INDUSTRIAL/SERVICE 100 list with $93.3 million in sales) went public in 1999. As a result, the market cap of the radio broadcaster grew to $2 billion.

Moreover, it obtained the capital to acquire 21 stations for $1.4 billion, expanding its portfolio of such properties to 49. (See "High Frequency Profits," this issue.)

Because of such milestones, it is only fitting that our rankings have been expanded to include the BE ASSET MANAGERS list, the leading black-owned firms that manage the funds of institutional and retail investors. With a raging, albeit volatile, bull market, money managers are profiting today like at no other time in history. In future years, more firms will make inroads as African Americans invest greater dollar amounts in the capital markets. The recent Ariel-Schwab Black Investor Survey, which compares the investing habits of blacks and whites, found that 64% of African Americans are stock market investors today vs. 57% just two years ago.

Although smaller than many majority firms, minority asset managers are going after contracts with extreme ferocity. For example, New York-based Paradigm Asset Management is not hesitating to "compete head to head" with big institutional money managers like Goldman Sachs Asset Management and J.P. Morgan Asset Management.

It will take that type of audacity to succeed in the current hypercompetitive financial services environment.

Some financial companies just play by their own rules. Rice Financial Products Co. (No. 5 on the BE INVESTMENT BANKS list), this year's Financial Company of the Year, has beat out some Wall Street monoliths because of its specialty in the financial derivatives market: interest rate swaps. In fact, the firm is one of the country's largest investment banks to handle such complex transactions.

What will change the business landscape for the other BE financial companies is the repeal of the Glass-Steagall Act, which since the Great Depression has separated the functions of commercial and investment banks. Joe Gladue, an analyst with The Chapman Co. (No. 9 on the BE INVESTMENT BANKS list), maintains that the new legislation will create "numerous new business combinations as financial services companies vie to become one-stop financial providers." That has become increasingly evident in the number of partnerships, acquisitions and mergers among black-owned companies. In some cases, the moves have been involuntary: one of this year's most publicized battles for the domination of black banking was Boston Bank of Commerce's thwarted takeover attempt of Carver Bancorp, the nation's largest African American financial institution with $413 million in assets. Even black insurers have gotten into the act: they have tried expanding market share through the upgrading of their technological infrastructure and development of strategic alliances with other financial institutions. For example, Atlanta Life Insurance Co. (No. 2 on the BE INSURANCE COMPANIES list with $193.3 million in assets) has pursued talks with MDL Capital (No. 9 on the BE ASSET MANAGERS list with $1.5 billion in assets under management) to increase its product offerings.

Many of the companies have decided if they couldn't beat majority firms, then it's best to profit from merging with them. Last June, Chicago-based Burrell Communications Group L.L.C. (No. 3 on the BE ADVERTISING AGENCIES list with $175.2 million billings) sold a stake in its business to the French advertising colossus, Publicis; and Southfield, Michigan-based Don Coleman Advertising (No. 2 on the list with $202 million in billings) forged an alliance with True North Communication Inc. Ironically, the leading black-owned agency was UniWorld Group Inc., which did not profit from the benefits of a partnership. The firm increased its billings to $230 million by snaring such New Economy accounts as Microsoft, the software manufacturing behemoth.

Auto dealers also realized the benefits of pooling resources. Following the lead of last year's Auto Dealer of the Year, March/Hodge Holding Co. (No. 2 on the BE AUTO DEALER 100 list with $258.4 million in sales), black auto dealers like Thomas Moorehead, Pam Rodgers and Richard Davis are combining operations through the creation of a holding company. Others are starting to discover that the road to profits may run through the Internet.

Bottom line, the New Economy is here to stay. But what is unknown is the extent to which technological innovation will transform industries and whether the boom times will continue to roll. However, the BE powerhouses will adapt and plug into any altered business environment that may be on the horizon.

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RELATED ARTICLE: ELIGIBILITY FOR THE B.E. 100s

The BE 100s are comprised of the BE INDUSTRIAL/SERVICE 100 and the BE AUTO DEALER 100 lists. To be eligible for the INDUSTRIAL/SERVICE 100 list, a company must have been fully operational in the previous calendar year and be at least 51% black owned. It must manufacture or own the product it sells or provide industrial or consumer services. Brokerages, real estate firms and firms that provide professional services (accountants, lawyers, etc.) are not eligible. To qualify for the AUTO DEALER 100 list, a dealership must have been fully operational in the previous year and be at least 51% black owned.

BLACK ENTERPRISE consults industry analysts and other sources to verify the information contained in the lists. All data are reviewed by the accounting firm Mitchell & Titus L.L.P. Companies not appearing on this year's list (but previously listed) have been excluded because they are no longer black owned or their gross sales have dropped below the minimum level required to make the list.

The BE 100s, as well as other business lists compiled by BE, are available on computer disk, in both Windows and Mac formats. TopList Software provides mailing addresses and phone numbers of the companies listed as well as information on black organizations.

For more information, contact B.E. Unlimited at 212-886-9576.