Spectacular Growth Driven By Purchases of Tech Firms.

PLATINUM EQUITY HOLDINGS

Business: Acquiring/operating tech companies

Location: Century City

Revenue Growth: 13,900%

How does a company increase its revenues by 13,900 percent over three years? Simple -- buy a lot of other companies.

That's the strategy Century City-based Platinum Equity Holdings has followed since its inception in 1995, growing its revenues from $5 million in 1996 to $700 million in 1998. The holding company now owns a portfolio of 13 operating companies, many of which were lackluster technology divisions of major corporations.

"We look for companies that provide mission-critical products and services," said Doug Johnston, senior vice president of financing and administration. "These are products that a user cannot go through the day without. In addition, the company must have been in business for at least five years and must have an established client base."

The purchases follow a standard procedure. A transition team is sent to the newly acquired company -- including specialists in technology, operations, marketing, and finance -- who together develop a new corporate strategy.

"The transition team is typically welcomed with open arms," said spokesman Bill Kobel. "In most cases, these are business units that are no longer aligned with the parent company, and they feel valued that they're being acquired."

Platinum Equity has been successful in targeting those divisions and subsidiaries that no longer fit in the overall business plan of the parent company (and that can be obtained at a relatively low price).

"They are looking for corporate orphans," said Lloyd Greif, president and chief executive of investment bank Greif & Co. "These are divisions that may have been under-managed, but are not necessarily distressed properties, and they are looking for attractive prices."

In January of this year, Platinum Equity acquired TeleService Resources of Fort Worth, Texas, for an undisclosed amount from AMR Corp., the parent of American Airlines. TeleService is a telemarketing company, which had $134 million in revenues last year. At the time of the sale, AMR said that it wanted to focus on its core business, operating the airline.

Among the other operations purchased last year: AT&T Corp.'s Insurance Solutions unit in Atlanta, which develops Internet applications for the insurance industry, and Racal Electronics Plc.'s Milgo Solutions in Sunrise, Fla., one of the oldest data communications businesses in the United States.

Analysts considered the price paid for Milgo, $47.5 million, to be low; Racal said it would take a $212 million charge to cover the loss on the sale. Moreover, Platinum Equity paid only $12.5 million in cash, with the rest payable as royalties on future sales over 10 years.

Typically, the technology divisions that Platinum Equity acquires are not cutting edge. Some have been around for more than 20 years, as with Milgo, which was established in 1955.

"They are not looking to invest in new high-flying companies," said John Mavredakis, managing director with investment bank Houlihan Lokey Howard & Zukin. "They are trying to accumulate bunches of singles and doubles rather than trying to hit a home run. It's a sound strategy because there is so much excess capital chasing not enough deals."

In evaluating potential acquisitions, Platinum Equity looks for synergies with other companies in its portfolio. Les Culver, vice president of acquisitions and strategy, said the purchase of TimePlex Group last August was undertaken in part because it was a good complement to Milgo Solutions.

The TimePlex acquisition from a Swiss venture capital firm, Schroder Ventures, also indicates that Platinum Equity is shifting from dowdy technology units of major corporations to earlier-stage companies.

"We're reinventing ourselves as we grow," said Culver. "Our original mandate was to acquire non-core operations, but now we're also acquiring companies from venture capital firms and we've been taking small public companies private."

The main question facing Platinum now is how well it will integrate the companies it has acquired.

"All our companies are more successful now than when we acquired them," said Culver. "One reason is that our people come from a technology background and have been very good in identifying companies to which we can add value and manage them well."

Another indication of success might be that the company's chief executive, Tom Gores, just bought a new Beverly Hills mansion for close to $4.6 million. Gores, who declined to be interviewed for this article, founded Platinum Equity in 1995, using proceeds from the sale of his Michigan software company, Ventext.

Company officials declined to disclose specific information about how Platinum Equity is financing its acquisitions. Johnston would say only that deals are primarily being funded by a core group of individual investors.

"Our financing is all in place," added Culver. "We're financed to do up to (an additional) $1 billion in transactions. When we are negotiating an acquisition, we don't have to go knocking on the door of a bank at the same time."

Culver said the company's assets currently are close to $850 million, and that amount will increased by year-end because additional acquisitions are pending.

Platinum Equity Holdings

Business: Acquiring and managing information technology companies

Headquarters: Century City

Revenues in 1996: $5 million

Revenues in 1998: $700 million

Established: 1995

Employees: 7,800

CEO: Tom Gores

Recent Acquisitions: TimePlex Group (Aug. 1999), TeleService Resources, (Jan. 1999), Tesseract (Jan. 1999), Milgo Solutions (Sept. 1998), Synertech (June 1998)