Thriving Outside of Public Spotlight

Safe From Nervous Shareholders, Firms Hold
Steady, Bolster Economy

Crain's New York Business - November 26, 2007
It looks like 2007 will be remembered as the year that Wall Street hit the wall. For a while, at least, Seth Merrin shared the pain.

Liquidnet Inc., his six-year-old electronic stock-trading firm—which had become the ninth-largest broker at the New York Stock Exchange—suddenly hit a rough patch. In the face of a swarm of about 40 new competitors, its revenue growth rate slipped from the double digits to a piddling 6% in the first quarter.

Mr. Merrin and his team of 300 employees responded with an all-out sales blitz, signing up two big new accounts, including UBS, and wooing back old ones. As chief executive of a privately held company, Mr. Merrin never had to take the time to alert outside shareholders to the problem or explain what he was doing to resolve it.

"It's nice operating outside the spotlight," says Mr. Merrin. "I was able to spend the time I needed on strategy and running the firm rather than meeting with analysts."

The counteroffensive worked. Liquidnet's order volume rose 12% in the third quarter, and Mr. Merrin expects the current quarter to be even stronger.

The outlook is similarly bright for many other privately held concerns in the New York area. As their competitors at large, publicly traded corporations tried to soothe anxious shareholders worried about signs of a slowing economy, the free-falling U.S. dollar and inflationary pressures, executives at private firms can maintain their focus on their businesses, most of which remain in good shape.

"The economy is awfully strong outside of the housing market," points out Tim Rogers, chief economist at Briefing.com, an independent market analysis firm. "So long as a company can focus on its business and not get distracted by all the noise, it's going to benefit."

The bulk of New York's largest privately held companies also benefit from operating in the services sector, which is holding up far better than manufacturing. The Institute for Supply Management's manufacturing index, which measures business activity, shows four straight months of declining growth. Services, meanwhile, held steady.

Given that the U.S. economy overall grew at a robust 3.9% rate in the most recent quarter, it's clear that stronger sectors are picking up the slack for the weaker ones, like home building and financial services.

Where the jobs are
"Small, privately owned businesses are where the jobs are being created," says Robert Brusca, chief economist at Facts and Opinion Economics. "They are holding the economy together."

Liz Elting's biggest worry at this point is finding and retaining people to fill those jobs.

"Competition for the best people has never been steeper, and that's a function of an economy that's still going strong, at least as far as I can see," Ms. Elting says.

She expects revenues at her company, which she co-founded in a New York University dorm room 15 years ago, to hit $150 million this year. That would mark a 33% jump over last year's levels and would be more than double 2005's total.
Head counts have grown accordingly, to about 750 full-time staff plus 4,000 freelance translators, who provide language services to many of the city's top law firms and financial institutions.

Driving force
Over on 11th Avenue, Manhattan Motorcars is relying on well-heeled employees of many of those same firms to help make 2008 another great year. As publicly traded dealer AutoNation forecasts a sales decline of 5% this year, and as CarMax warns of tougher times coming in 2008, John Kaufman's West Side dealership is enjoying boom times.
Demand remains strong for his shop's most popular model, the Porsche 911. Mr. Kaufman expects to sell 500 Porsches this year, at prices starting at $75,000. He notes that sales of all luxury models are up considerably in 2007, and he expects revenues to reach $12 million.

Even though Wall Street bonuses are expected to drop this year for the first time in five years, Mr. Kaufman says bankers and brokers are not about to sacrifice their dream of driving off in a new Bentley or Lotus.

"We haven't seen any sign of a slowdown on Wall Street," he says. "A 10% decline in the money the people there make still leaves them with a lot."

– Aaron Elstein