Change agents

Oregon’s top private companies diversify to stay ahead of the downturn.

By Ben Jacklet

Workers for Vigor Industrial (Private 150 Company No. 92) remove a piece of metal welded to the rudder of a military vessel. Vigor reported sales increased 50% in 2007. PHOTO BY DENISE FARWELL

Frank Foti sprints up a flight of rusty stairs to a gritty rooftop with a panoramic view of Portland’s shipyard. Down below, workers in hardhats are pedaling bicycles from one job site to the next, through a maze of huge cement blocks, oil drums, spools of wire, pipes and beams. The air resonates with a purposeful hum of ventilation systems, forklifts, trucks and cranes. A half-dozen boats are docked for repairs, including a dredge ship, a tugboat, a tour boat and several military vessels. A huge new barge, the 360-foot, 6,000-ton Maka’ala, is nearly ready for launching.

“This place was dead,” says Foti, CEO of Vigor Industrial. “It was dead. And now we are thriving.”

Foti was widely criticized in 2002 for selling the shipyard’s most valuable asset, the largest dry dock on the West Coast. But in his view the sale was a vital first step toward reform. “The market for ship repair changed, and we had to adjust,” he says. “Selling the dry dock gave us an opportunity to regroup and to find a profitable niche. We are now back to the sales levels we had before, except we have gotten there profitably, and we have substantially reinvested our profits to build more infrastructure and develop new businesses.”

Five businesses under the umbrella of Vigor Industrial operate on this sprawling waterfront property, in addition to 17 industrial companies leasing space here. There also is a new training program set up by Portland Community College and, most significantly, the growing barge-building company, U.S. Barge. Founded in 2005 by Vigor Industrial and Clackamas-based Oregon Iron Works, U.S. Barge has grown quickly to 160 employees and has jobs lined up well into 2009.

Revenues for Vigor Industrial rose 50% in 2007, making Foti’s diversified industrial group one of the best performers in Oregon’s Private 150. But Vigor (No. 92) was not the only private business to adapt successfully to the challenges of globalization and an economic downturn. In a year that will be remembered for its ominous mix of mortgage meltdown, housing crisis and fast-rising energy prices, many private Oregon companies prospered.

An example is Portland-based Fortis Construction, founded in 2003, the youngest company to make the list and tied for the fastest growing, with a 108% jump in revenues. Over five years Fortis (No. 105) has expanded from a startup run out of a basement room at Portland State University to a $40 million company partnering with the University of Oregon, Oregon State University and Standard Insurance. The firm’s highly visible $25 million renovation of the state capitol is on target to be completed this fall, ahead of schedule and under budget.

Fortis president Jim Kilpatrick says the company benefited from its roots as the Portland office for DPR Construction, a national leader in general contracting. “We had the capabilities and experience to do much larger projects than what we started with,” he says. “Now we’re finally getting to a place where we can stabilize with the kinds of projects that we are well equipped to do.”

A helicopter is refurbished at the maintenance facility of Columbia Helicopters in Aurora. PHOTO BY DENISE FARWELL

Fortis also has invested heavily in sustainability, with a large percentage of LEED-certified green building specialists and a goal to gain eventual accreditation for all managers and superintendents. These green credentials have helped Fortis benefit from the latest wave of commercial and public works projects in Oregon.

But it is unclear how long the money will keep flowing. As a hedge against an eventual slowdown, Fortis is aggressively pursuing technology data centers, which store servers for companies expanding their Internet capabilities. David Aaroe, executive vice president, explains that these buildings appear simple from the outside but are incredibly complex inside.

“Envision a 150,000-square-foot building with 88,000 servers in it and 47 miles of underground conduit,” he says. To further complicate matters, Aaroe notes that the cost of the copper wire required for that building went up $1.7 million in 90 days, a jaw-dropping example of the price increases that are hammering builders as well as the broader economy. Fuel costs are just the beginning; prices are up for everything from steel and wire to carpeting and plastic pipes.

In spite of rising costs, Kilpatrick predicts 2008 will be the company’s most successful year yet. Beyond that, he predicts, “The economic slowdown will eventually reach commercial building.”

Already it has hit homebuilders hard. Several major Oregon homebuilders have gone bankrupt, and two veterans of the Private 150 list, No. 82 Matrix Development (dba Legend Homes, which filed bankruptcy in June) and No. 102 Buena Vista Custom Homes, saw revenues fall by 30% and 42% respectively. Likewise, the housing slump has taken a toll on forestry and wood products companies. Perennial powerhouses Ochoco Lumber, (No. 93) North Pacific (No. 6), the Swanson Group (No. 32), Bright Wood Corp. (No. 48), Hampton Affiliates (No. 7) and the Collins Companies (No. 50) all saw double-digit drops in sales.

But some businesses long reliant on timber money have sidestepped the downturn by expanding their horizons. Aurora-based Columbia Helicopters (No. 56), which made most of its fortune in helicopter logging, followed the money into oil exploration projects in South America and Southeast Asia, in addition to fighting fires in Southern California and beefing up its maintenance and repair operations. The result was a 39% jump in revenues.

Columbia Helicopters president Mike Fahey says the maintenance and repair side of Columbia’s business has doubled over the past few years and he expects that growth to continue. Columbia also is pioneering a new method of airborne firefighting that uses buckets rather than tanks for storing water, making it easier to refill quickly. “We used this system to fight several fires last year and we were lapping the tanked aircraft,” says Fahey.

Peter Shaw of Fortis Construction works on the Fir Acres Theater at Lewis & Clark College. PHOTO BY DENISE FARWELL

One of Columbia’s main competitors for future firefighting contracts will be Evergreen Aviation (No. 9), another perennial front-runner on the Private 150 list. After investing more than $50 million in research and 20,000 engineer hours, Evergreen has begun marketing its massive new firefighting “supertanker,” a Boeing 747 retrofitted with water nozzles to blast huge volumes of liquid onto forest fires. This new approach to firefighting represents the latest innovation for the one-of-a-kind McMinnville-based company that specializes in everything from unmanned aerial drones to hazelnut shells.

Even the king of the Private 150 has had to diversify to stay on top. Closely held Jeld-Wen, headquartered in Klamath Falls, rose to the top of the list in 1996 after years of double-digit growth and has stayed No. 1 ever since, building name recognition through a sponsorship spending spree targeting Australian Rules football, NASCAR, an OHSU leukemia research program and, of course, golf. Millions of television viewers see ads touting Jeld-Wen’s doors and windows while watching the Jeld-Wen Tradition and the Player’s Championship. Jeld-Wen also has deepened its expansion into the leisure business, opening a huge new water park at its destination resort in Idaho and an upscale resort called Suncadia in Washington where homes are selling for up to $3.25 million.

Gresham-based Allegro Media Group (No. 101), which matched Fortis Construction’s 108% sales growth, is another case study in strategic adaptation. The Gresham-based entertainment distribution company has quadrupled its business over the past five years to $100 million in sales and 100 employees by delving into every genre of music imaginable, from classical to New Age to indie rock, distributing digital music and videos through major Internet sites as well as CDs and books on tape through Wal-Mart, truck stops, Nordstrom and other retailers.

Between its new 131,000-square-foot facility in Rockwood, its recent acquisition of a company that specializes in marketing music and videos to the Armed Forces and a new infusion of $37 million in equity, Allegro is well positioned to avoid the misfortunes plaguing less nimble players within the music and entertainment industry.

“The entertainment industry isn’t dying,” clarifies Allegro CFO Vince Micallef. “It is changing. And if you’re not changing, you’re probably dying.”

Therein lies the challenge for Oregon’s private companies, large and small: to remain ahead of the game by adapting intelligently, even as fuel prices continue shooting upward, home values keep sliding downward and banks, businesses and consumers look for ways to cut back.

That seems like a tall order for any business, but from Foti’s perspective overlooking the humming docks of a shipyard once given up for dead, anything appears possible. “Those of us who have been through the hard times at the shipyard are especially grateful for the times we have now,” he says. “And we have a stronger belief in ourselves and our ability to be resilient and adaptable.”

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