A tactical decision by Costa leads to sale of company

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

12/13/2007 2:45 AM

12/13/2007 10:00 AM

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.

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.

Loren White, director of operations for Royal Robbins, said he couldn't comment on the sale because he was unfamiliar with the details.

"It really built a cultlike following," White said of 5.11's pants. "There became a demand from all these agencies in the U.S. and South America and Europe."

"The pants just fired it up," Costa said.

The company added a vest and a shirt, then other products, including underwear, watches and jackets.

No need for marketing

Orders came in before 5.11 began marketing them, Costa said. "Like throwing feathers in a vacuum. They just suck it all up," he said.

Sales went from $5.7 million in 2003 to $57.3 million last year. Projected sales for 2007 are $95 million, and Costa said he's just starting to explore new markets with firefighters.

Erica Reynoso, 26, joined 5.11 Tactical's marketing team about a month after it split from Royal Robbins. The whirlwind hasn't stopped since, she said, and she hasn't had time to notice.

"It's kind of surreal still," she said of the sale announcement. "But it's nice because these are financial partners who will let us do what we need to do. They won't come in here and shake fingers at us."

Earlier this year, 5.11 Tactical was ranked No. 211 on Inc. magazine's list of the 500 fastest- growing companies in the nation.

That's one sign of the com- pany's arrival. But there are others.

Costa said someone sent him a photo not long ago of Prince Harry -- possible heir to the British throne -- hopping off a military helicopter. On his head is a 5.11 Tactical baseball cap.

Then there's the handwritten note from actress Jennifer Garner. She and her co-stars wore 5.11 watches for "The Kingdom," an action movie set in the Middle East. Why were they wearing 5.11 watches?

"Because they were portraying official military people," Costa said with a smile. "They had to look the part."

In a news release, Jeffrey T. Chambers, a managing director at TA Associates, said that based on 5.11 Tactical's management team and track record, the Modesto company is projected to keep growing.

Costa said after building 5.11, he realized it would be better served if someone else had a majority stake.

With TA's plans to take 5.11 public, he said, he'd prefer to concentrate on increasing sales rather than dealing with a stockholders' board. That led to the deal with TA Associates, which was among 14 interested buyers, Costa said.

When the sale was announced Monday, Costa said, there was cheering at the north Modesto headquarters. Some of the 100 or so employees based there cried.

Then, back to work.

As Reynoso put it, the past few months have been taken up with the sale. Planning for next year is behind.

"Maybe in a month or two, I'll get to enjoy it," said Reynoso, now 5.11's vice president of marketing. "Right now, I'm excited for a new challenge."

Bee staff writer Ben van der Meer can be reached at bvandermeer@modbee.com or 578-2331.

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