As Long Island's top companies list shrinks, corporate landscape shifts
A buoyant merger and acquisition market and corporate wanderlust are sapping Long Island's roster of public companies.
Those marquee names are being quietly replaced by a larger number of smaller, private companies, as the Island's business composition goes through a little-noticed transformation.
The number of Long Island businesses increased 3.3 percent to 95,399 in 2012 versus the previous 10 years, according to the Census Bureau, while the number of companies with 500 employees or more shrank nearly 7 percent.
"It seems we're replacing a lot of bigger companies with smaller ones," said Shital Patel, labor market analyst for the state Department of Labor.
At the same time, companies from Japan, California and England have paid billions of dollars for public Long Island corporations. Private equity giants have bought enterprises they can streamline and later sell or take public. And companies have moved their headquarters from the Island to Manhattan, the Rocky Mountains and Atlanta.
The result: The ranks of Long Island companies traded on major stock exchanges have shrunk from 99 in 2003 to 56 at the end of last year, according to data from S&P Capital IQ -- a 43 percent decline. This continues a trend dating to 1998 or earlier, when there were at least 110 companies on Long Island whose shares were traded on major exchanges.
The national roster of public companies is also shrinking, but at less than half Long Island's rate. In the same stretch, from 2003 through 2013, the number of domestic listings on major U.S. exchanges declined 21 percent, according to data from the World Federation of Exchanges.
Experts say the decline nationally, and the sharper slump on Long Island, are related to regulations enacted since 1990, partly intended to combat the type of securities fraud exemplified by former Lake Success brokerage Stratton Oakmont, portrayed in the movie "The Wolf of Wall Street." But as an unintended consequence, those regulations have made it more expensive to be a public company -- and made it particularly difficult for the small initial public offerings, or IPOs, that were instrumental to Long Island companies such as Sandata Technologies LLC going public in the past.
To be sure, Long Island still has corporate stalwarts. Henry Schein Inc., the largest company here as ranked by its almost $10 billion in 2013 revenue, runs a growing global health-products distribution operation.
"The connection between Long Island and Henry Schein has deepened as we have climbed the Fortune 500," said Stanley M. Bergman, chief executive of Henry Schein. "We appreciate the . . . leading schools and universities, terrific quality of life, and the benefits of living so close to one of the world's great cities. We embrace our Long Island roots."
Cablevision Systems Corp., Bethpage-based parent of Newsday, ranks No. 2, with revenue of $6.2 billion. Fifth- ranked Pall Corp., a Port Washington filtration company, has seen its stock market capitalization flirt with $10 billion.
Dealertrack Technologies Inc., a maker of software for auto dealers, and Hain Celestial Group Inc., a distributor of natural foods, notched robust three-year compound annual revenue growth of 25 percent.
This is the last year CA Technologies, Long Island's third-largest public company by revenue in 2013, will be on Newsday's list of locally headquartered public companies. Though Islandia remains a hub of its operations, the maker of business software has moved its main offices to Manhattan.
Already gone from the list is electronics wholesaler Arrow Electronics Inc., once Long Island's largest public company, which in 2011 moved to Colorado -- where its CEO resides. Arrow's annual revenue in 2013 was equal to almost half of the $44.8 billion for all remaining 56 public companies on Long Island.
Long Island has two companies on the Fortune 500 -- Henry Schein and Cablevision -- down from four a decade ago.
There is a cost to a region when public companies leave, said Anoop Rai, professor of finance at Hofstra University's Zarb School of Business.
"It's always good to have public companies in a region," he said. "It signifies steady growth, maturity and confidence."
More smaller businesses
But while the number of public corporations has dwindled, the number of company headquarters overall on Long Island -- defined as establishments that hold an ownership interest in or oversee and manage other parts of a company -- has jumped in the 10 years ended 2013 by more than 50 percent to 467, according to the state Labor Department. These companies are overwhelmingly private, and tend to be smaller than the public companies.
Irwin Kellner, the Port Washington-based chief economist for MarketWatch.com, a financial website, said that the increase in the number of company headquarters on Long Island holds promise.
"These are startups," he said. "These are entrepreneurial endeavors, and these will be the companies of the future. That they chose Long Island to start up and grow is a positive sign."
Turning to private equity
Some of Long Island's public companies have exited the public markets through buyouts by private equity firms, which often can offer attractive terms because their tax rates typically are lower than corporations', Hofstra's Rai said.
"They also have more flexibility in shedding jobs and being more creative and nimble," he said.
Some companies go through a blender of private equity, IPO and corporate buyouts. In 2007, a consortium of private equity firms bought Plainview-based Aeroflex Holding Corp. for $1 billion before raising more than $200 million on the New York Stock Exchange in a 2010 IPO, the most recent on Long Island, according to IPO exchange-traded-fund manager Renaissance Capital. In May, management and the private equity firms, which maintained majority control, agreed to sell Aeroflex to British defense contractor Cobham PLC for $1.46 billion.
"The private equity funds are located off the Island," said Long Island Association chief executive Kevin Law. "It's great that people want to invest in Long Island companies, but it creates some areas of concern."
Laws pose hurdles for IPOs
Steve Kuperschmid, chairman of the business law group at Silverman Acampora LLP in Jericho, said many Long Island companies previously went public through regulations in place in the 1980s that eased the path for small companies.
Small IPOs were common because of Long Island's entrepreneurial culture, its proximity to Wall Street investment bankers and executives' hopes that they could use stock as currency to make acquisitions, Kuperschmid said.
But laws intended to tighten accounting standards and weed out fraud in the securities market also dried up Long Island's IPO pipeline, he said.
To combat "boiler room" stock brokers, Congress passed the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, erecting hurdles for brokerages taking low-priced stocks public.
The Sarbanes-Oxley Act, passed in 2002 after accounting scandals at Enron Corp. and WorldCom Inc., imposed costly new reporting requirements on listed companies.
The result? Many small, public companies went private or were sold to private equity firms.
Bert Brodsky, executive chairman and founder of Port Washington-based Sandata, a provider of home health care software, said that after Sarbanes-Oxley the company was spending about 20 percent of profits on government-required administrative fees.
"You couldn't be a $40 million or $50 million company and be public," Brodsky said. "It makes no sense." In response, Brodsky spearheaded a management-led buyout in 2003.
Despite the exodus of large, signature companies, however, Long Island's economy "has found a way to compensate" as smaller, private businesses fill the gap, said Patel of the state Labor Department.
One of those companies is Farmingdale-based Bedgear, which uses high-tech materials to make sheets and pillows.
The 6-year-old closely held company, whose products are sold at Sleepy's and Bed Bath & Beyond, posted revenue of $38 million in 2013 and forecasts growth of more than 30 percent in 2014.
CEO Eugene Alletto, a former furniture wholesaler, said that he taps office design, a playful atmosphere, and Long Island's natural beauty to lure a creative workforce that otherwise would be toiling in Manhattan.
"It's critical that people know there's a booming economy on Long Island," said Alletto, 45. "We created our own economy. It's here for the taking."
(The data provider for Newsdays 2014 ranking of top Long Island companies is S&P Capital IQ. An earlier version of this story misstated the name.)