A tactical decision by Costa leads to sale of company

He sells majority ownership of booming 5.11 uniform company, buys back 20%

By BEN van der MEER
bvandermeer@modbee.com

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A pair of pants given to a trainee at FBI headquarters eight years ago is now worth $305 million.

More accurately, that was the sales price this week for the name on those pants: 5.11 Tactical, the Modesto uniform and apparel company that sold a majority stake to TA Associates, a Boston private equity firm.

Dan Costa, 5.11's founder, said the sale was the culmination of much hard work, and perhaps equal amounts of happenstance.

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AT A GLANCE

COMPANY: 5.11 Tactical
HEADQUARTERS: Modesto
EMPLOYEES: Approximately 170
ESTIMATED ANNUAL SALES: $95 million
HISTORY: Modesto businessman Dan Costa founded the company in 2003, a spinoff from Royal Robbins Inc. 5.11 Tactical creates products that enhance the safety, accuracy, speed and performance of law enforcement, military and firefighting professionals. In August, Inc. magazine ranked it at No. 211 on it's list of 500 fastest-growing private companies in the United States.
WEB SITE: www.511tactical.com
TA ASSOCIATES INC.

HEADQUARTERS: Boston EMPLOYEES: 3,915 ESTIMATED ANNUAL SALES: $278.6 million HISTORY: It is one of the largest and most experienced private equity firms in the United States, managing more than $10 billion in capital. It has invested $50 million to $600 million in about 380 companies since its founding in 1968. It has investments in business, financial and health care services; consumer products and services; and technology companies. WEB SITE: www.ta.com Source: Hoover's, company Web site
COSTA'S MANY VENTURES

Dan Costa's career as an entrepreneur began early, when he opened an ice cream and sandwich shop in Modesto at age 23. Here are a few highlights:
- 1976: Opens first Velvet Creamery restaurant. He eventually has 29 of the ice cream and sandwich shops.
- 1979: Buys Velvet Ice Cream Co. in Modesto
- 1981: Founds Davis Lay Food Service Inc. to distribute wholesale produce to his and other restaurants and institutions
- 1984: Closes Velvet Ice Cream factory
- 1986: Opens Mallard's restaurant in Modesto, which grosses $4.7 million in sales its first year
- 1987: Offers line of soups to other restaurants under the name Velvet Foods Inc.
- 1989: Sells Velvet Foods and the Velvet Creamery restaurant chain
- 1990: Buys Smoky's restaurant with his brother, Mike Nelson
- 1990: Opens Mallard's Inn on Sisk Road in Modesto, partnering with The Rim Corp., a Modesto hotel development company
- 1991: Opens a second Mallard's restaurant in Stockton
- 1992: Founds Mallard's Foods, which eventually includes a line of pasta, sauces, salad dressings and soups sold in grocery stores. From 1992 to 1997, Mallard's Foods annual sales grow to $30 million.
- 1994: Mallard's Foods pasta plant opens in Modesto. The company grows to $40 million in annual sales within three years.
- 1995: Builds a 31,360-square-foot plant on Stoddard Road in Salida for Mallard's Foods
- 1997: Sells Mallard's Foods to Tyson Foods for an undisclosed sum
- 1997: Sells Davis Lay to Port Stockton Food Distributors for an undisclosed sum
- 1999: Receives Modesto City Council approval to develop NorthPointe Shopping Center, which becomes home to Costco and Lowe's
- 1999: Sells half-interest in the Modesto and Stockton Mallard's restaurants
- 1999: Buys 51 percent of Modesto-based outdoor clothing company Royal Robbins Inc., and becomes chief executive officer
- 2001: Buys the rest of Royal Robbins Inc.
- 2002: Michael Angelo's Gourmet Foods buys the Mallard's Foods plant for $3.5 million
- 2002: Creates 5.11 Tactical as a separate company from Royal Robbins
- 2003: Sells Royal Robbins to Phoenix Footwear, and remains under contract to help run the company
- 2005: Costa sells the Mallard's restaurants.
- 2007: A Boston private equity firm buys a majority stake in 5.11 Tactical for $300 million. TA Associates says that 5.11's senior management, including Costa, will remain in place.
Source: Modesto Bee archives
ABOUT THE NAME

The company name is a reference to rock-climbing legen Royal Robbins, who with his wife, Liz, designed the original 5.11 pants in 1968. The number 5.11 signifies the most difficult level of rock climbing in the Yosemite Decimal System of rating climbs.

As in outdoor clothing company Royal Robbins Inc. owning the 5.11 brand for years, but being unwilling to market it or increase its sales, according to Costa.

As in an FBI agent who was married to a Royal Robbins sales representative, who kept the pants as part of the standard issue to law enforcement officers worldwide who came to train at the FBI's facility in Quantico, Va.

As in positive word of mouth for 5.11 products being so strong among those officers that they contacted 5.11 Tactical directly for pants, jackets, shirts and other products, rather than going through a dealer.

"When I had my first order with a dealer, I gave it to them for free because they didn't believe in the brand," said Costa, 53, who split 5.11 Tactical from Royal Robbins as its own com-pany in 2003. "They called me a few weeks later and asked if I'd had someone come in and buy everything they had."

Costa said the strong 5.11 brand affiliation won't change with the deal, in which senior management will stay on board, the base of operations will remain in Modesto and several top managers at 5.11 became millionaires overnight, thanks to stock options Costa gave them when he hired them.

One of those employees, controller Lauri Cerny, said the windfall she's received is still a bit much to think about.

"It's life changing, in terms of thinking about early retirement," said Cerny, who lives in Modesto. "It was very generous. Dan knows that he's working you to death, so you need that incentive there."

'Stockholders' did very well

About $240 million of the sales price was distributed among 5.11's "stockholders," Costa said. While not all of them became millionaires, some got a check this week for three times their an-nual salary, he said.

As part of the deal, Costa bought back a 20 percent share in the company for about $60 million, which he said will ensure that he has an interest in the company's growth.

That's a change of habit for Costa, an entrepreneur with an established pattern of buying or founding businesses, making them into highly successful entities, then selling them.

Costa has owned and sold the Velvet Creamery restaurant chain, Velvet Foods, Mallard's Restaurant in Modesto and Stockton, Mallard's Foods pasta plant, Davis Lay Food Service Inc. and Royal Robbins outdoor clothing.

He continues to own and develop NorthPointe Shopping Center in north Modesto, which is anchored by Costco and Lowe's.

Costa said 5.11 may be the most unlikely success he's had. When he bought Royal Robbins in 1999, vendors told him the company gave them constant headaches. He discovered that one pair of 5.11 Tactical cargo pants cost nearly twice as much as cargo pants from competitors.

But law enforcement officers loved them. Originally designed as ultra-sturdy pants for mountain climbing, some Colorado-based FBI agents who were also climbers discovered 5.11 trousers were good for work and play.

Eventually, the pants ended up at the FBI training center in Virginia. When top officers from around the world began wearing 5.11 products they got from the FBI, other officers wanted their own, Costa said.