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Consolidation Plays Out Among Public Cos.

Acquisitions and economic upheaval have made Orange County’s largest public companies a smaller group than a year ago, according to this week’s Business Journal list.

Seven buyouts and two mortgage lender failures had a big impact on the 75 largest public companies here, taking away $5 billion in revenue from this year’s group.

2008 sales at the 75 companies were $92 billion, flat with revenue at those same companies a year earlier.

But compared to the 75 companies that appeared on 2008’s list, revenue at this year’s group was down 5% from $97 billion.

The list ranks companies by revenue for the most recent 12 months, most through December. Financial figures were compiled by Los Angeles-based investment bank B. Riley & Co. Employment figures were collected from the companies or estimated by the Business Journal.

The list is the first of two covering the 125 largest public companies in the county. The second list of 50 companies is set to appear in the April 20 issue.

The week’s list saw an acceleration of the reshuffling usually seen among local public companies each year. Last year’s list saw five companies depart because of acquisitions and a bankruptcy.

For some of this year’s departures, selling to private equity firms proved more appealing than being public, according to Greg Presson, a senior managing director in B. Riley’s Newport Beach office.

Being public “used to be the golden ring,” he said, but “the public markets haven’t been a wonderful place to be.”

This year’s departures:

– Lake Forest-based Apria Healthcare Group Inc., which ranked No. 9 on last year’s list and was acquired for $1.7 billion in November by private equity firm Blackstone Group LP.

– Santa Ana-based Advanced Medical Optics Inc., last year’s No. 15, which was acquired in February for $2.8 billion by Abbott Laboratories.

– Newport Beach-based Downey Financial Corp., which ranked No. 18 last year and is winding down in bankruptcy after regulators seized the company’s savings and loan in November and shifted deposits to U.S. Bancorp’s U.S. Bank.

– Brea-based Fremont General Corp., last year’s No. 32, which also is winding down in bankruptcy after the subprime mortgage and bank company ran into trouble with regulators last year and sold its branches to Maryland’s CapitalSource Inc.

– Newport Beach-based TriZetto Group Inc., which ranked No. 33 last year and was acquired in July for $1.4 billion by private equity firm Apax Partners Inc.

– Newport Beach-based Jazz Technologies Inc., last year’s No. 54, which was acquired in September for $169 million by Israel’s Tower Semiconductor Ltd.

– Tustin’s Cherokee International Corp., which ranked No. 61 last year and was acquired in the fall for $105 million by Lineage Power Holdings Inc., part of Los Angeles-based private equity firm Gores Group LLC.

– Newport Beach-based SM & A;, last year’s No. 68, which was acquired in December for $119.6 million by private equity firm Odyssey Investment Partners LLC.

– Irvine’s HireRight Inc., which ranked No. 73 last year and was bought last summer for $195 million by Virginia’s US Investigations Services LLC.

The county could see more acquisitions this year as big companies look to buy to spur growth or to take advantage of lower valuations, Presson said.

The departures plus two companies that fell from last year’s top 75 to this year’s second group opened up 11 spots for newcomers on this week’s list.

The most significant were a pair of sizable newcomers: No. 25 Lake Forest-based Primoris Services Corp. and No. 33 Orange-based United Fuel & Energy Corp.

Primoris is the holding company for Lake Forest construction and engineering company ARB Inc., which went public in July after buying about 80% of New York-based blank-check company Rhapsody Acquisition Corp. in a reverse merger.

The company had $609 million in 2008 revenue, up 11% from a year earlier. Net income at Primoris grew 34% to $36 million on steady work from public utilities and energy companies.

United Fuel & Energy came to the list after moving its headquarters from Midland, Texas, to Orange in September. The company is run by Chief Executive Frank Greinke Jr., who also runs Orange-based SC Fuels, a privately held distributor of gas and lubricants for trucks and corporate fleets.

United Fuel’s move came after a 2007 deal that saw SC Fuel sell its unattended gas station business to United Fuel, a supplier of gasoline, diesel, propane and lubricants.

Greinke, who had been United Fuel’s chairman and majority owner, became chief executive in June. He moved the business to Orange to cut costs.

“Our entire team has worked hard to lower our overhead and operating costs,” he told investors and analysts on a November conference call.

United Fuel had 2008 revenue of $443 million, up 34% from a year earlier. The company lost $5 million, versus a profit of $1.6 million a year earlier.

As a group, the 75 companies on the list lost $627 million, compared to a profit of $1.4 billion a year earlier. The loss, which came on flat revenue, was telling of the kind of year 2008 was for public companies.

Much of the loss was driven by restructuring charges at several companies and a big write-down on land and unsold homes at No. 9 Irvine-based homebuilder Standard Pacific Corp., which saw a $1.2 billion net loss.

“A lot of companies entered 2008 with expectations that business would not be as bad as it turned out to be,” said Ian Corydon, director of research at B. Riley. “As the year wore on, companies began to reduce capital expenditures and headcount dramatically. However they were behind the curve.”

2009 is proving just as tough, but expectations are more realistic, according to Corydon.

“They have generally done a good job of positioning their businesses to be able to take advantage of the eventual turn in the economy by taking significant expenses out of their businesses,” he said.


Top Spots

Santa Ana-based Ingram Micro Inc., the largest distributor of technology products, easily held the top spot on the list, as it has for years.

Ingram had 2008 revenue of $34.4 billion, down 2% from a year earlier as the company deals with a slowdown in corporate demand for computer products and fewer consumers buying household electronics.

Still, Ingram made up 38% of the revenue for the 75 companies on the list.

It lost $395 million in 2008, versus a profit of $276 million a year earlier.

Lake Forest-based Western Digital Corp. moved up a spot from a year ago to No. 2 on its own growth and a downturn at Santa Ana-based First American Corp., which fell a spot to No. 3.

Disk drive maker Western Digital saw a 19% gain to $8 billion in revenue last year before strong demand gave way to a slowdown late in 2008.

Western Digital also was the most profitable company on the list with 2008 net income of $718 million, up 2% from a year earlier.

No. 5 Irvine-based Allergan Inc. was next at $579 million in net income and claims a better net profit margin,13% versus Western Digital’s 9%.

First American, a provider of title insurance policies and data services for businesses, saw revenue fall 22% to $6.3 billion as the mortgage, housing and commercial real estate markets continued to slump.

Two others that have battled for bragging rights as the county’s most valuable public company,Broadcom Corp. and Allergan,ended up swapping places.

Irvine chipmaker Broadcom took the No. 4 spot with a 23% gain in 2008 revenue to $4.7 billion. Allergan, a drug maker best known for Botox, also grew but not at the same pace. Its 2008 revenue was up 12% to $4.3 billion. The company dropped a spot to No. 5.

But Allergan easily held the title of most valuable with a market value of $14.5 billion last week, compared to Broadcom’s $9.9 billion.

Among the top 10, Standard Pacific saw the biggest drop, going from No. 6 last year to No. 9 with a 47% drop in revenue to $1.5 billion as the housing downturn continued to play out.

The departure of home healthcare provider Apria allowed Foothill Ranch-based aluminum products maker Kaiser Aluminum Corp. to crack the top 10, up from No. 11 last year. The company’s sales were flat at $1.5 billion.

Local employment at the 75 companies was down 3% to 32,771 workers. That’s on par with the county’s overall 2.7% decline in jobs last year, according to the state’s Employment Development Department.

The companies cut jobs faster here than elsewhere, as total employment was down less than 1% to 314,787 workers around the world.

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