Costa's Six

Teamwork built clothing company that sold for $305M

12/16/2007 3:58 AM

12/16/2007 7:36 AM

Call them Costa's Six.

The premise: Modesto entrepreneur Dan Costa would take a clothing brand, 5.11 Tactical, known for its durability and fit among the FBI's Virginia academy trainees, and make it global.

To do so, he needed a team of top business professionals who could make the vision tangible. In retrospect, Costa said, it was almost as daring as the casino heist pulled by the team of crack thieves in "Ocean's 11."

For Costa's team, the payout came last week, when 5.11 Tactical was sold to a Boston equity firm for $305 million. After some accounting and reinvesting, that meant a $240 million share for Costa, his team and other longtime employees who believed in the company's concept.

The initial idea seemed plausible to Costa, who had built up several brands, including Mallard's and Velvet Creamery restaurants, and Davis Lay Food Service, then sold them.

He said he came to believe in 5.11's possibilities in 1999, after he bought outdoor clothier Royal Robbins, which originally made 5.11 pants. They were named for a degree of rock-climbing difficulty and designed for that activity.

When Costa visited the FBI's Quantico, Va., training center shortly afterward, everyone was wearing 5.11 Tactical pants.

"I said to myself, 'I just need more product,' " Costa, 53, recalled.

The brand's popularity grew, and four years later, Costa sold Royal Robbins and split off 5.11 Tactical.

Now it was time to form his team on a gamble that designing and selling uniforms for law enforcement officers could succeed as a global venture.

One member of that team, Francisco Morales, said he was skeptical when Costa approached him.

Morales, 33, had been hired by Costa at Royal Robbins. Now Costa wanted him to go to Asia and find garment factories that could turn out more 5.11 Tactical pants. And eventually, vests. And shirts. And a dozen other products, including watches, hats and underwear.

"He's saying it's going to be one of the biggest brands he's ever seen," said Morales, who grew up sweeping and later managing his father's garment factories in Venezuela. "Dan was unbelievable to have that vision."

Rounding out the team

Costa, the idea man at the top, convinced Morales to handle factory operations. He turned to a longtime friend and accountant, Jeff Hamilton, to figure the finances.

Hamilton had scooped ice cream and made sandwiches for Costa's first Velvet Creamery restaurant. That eatery became a chain of 29 before Costa sold it.

"I've been associated long enough with Dan to be almost as confident as he is," said Hamilton, 47. "He had initial goals and targets that seemed lofty. But there was never any doubt."

The team was completed with three employees from E&J Gallo Winery. The first, Erica Reynoso, 27, was only a few years out of the University of the Pacific when Costa asked her, as a freelance job, to design a new brochure for 5.11.

"She came back and said, 'You don't need a new brochure, you need a new marketing approach," said Costa, who made Reynoso his marketing manager. "I thought, 'This is the attitude that 5.11 needs!' "

Two longtime E.&J. Gallo Winery employees, Matt Sinclair and Bob Denny, were the sales guys. They would travel throughout the United States and the world, convincing law enforcement agencies that 5.11 Tactical products were what their officers should wear.

Sinclair said he had to be sold more than the pants did. When Costa called with a job pitch, Sinclair, then vice president of marketing at Gallo, was on his way home from a new winery he was managing in Napa.

"I laughed at him over the phone," said Sinclair, 46. "I said, 'Dan, there's not a chance in the world. I love what I do.' "

Costa convinced him to come by the 5.11 warehouse that night, when Sinclair returned to Modesto. When Sinclair did, Costa had laid out a full dinner for him.

That night, Sinclair said, he became convinced that Costa had the same vision for the future that the late Ernest Gallo had for the wine industry. But it took more dinners, and a visit to a trade show months later, before he came on board.

At that trade show, Sinclair watched as officer after officer headed to the 5.11 booth. The booth workers became overrun; Sinclair had to help.

"It was swarmed like it was being attacked by bees," Sinclair said. "I didn't fully understand it, but Dan had something the user really loved."

Strong appeal to customer tastes was what Denny also came to see about 5.11's uniforms.

Listening to consumer feedback

The popularity of 5.11's pants -- the khaki and black men's pants and green tactical pants are three of the four top-grossing items in the line -- comes from the company's focus on a comfortable fit, and knowing that bodies change. Designers also remain flexible while listening to consumer feedback.

"It's about the things they want, but also what doesn't work," said Denny, 40. "That's what consumer products are all about."

He added that it was easier to make a sale to a sheriff or police chief who already was wearing 5.11 gear that was standard issue at the FBI training session in Virginia.

Costa, who noted that 5.11 Tactical did little advertising in the beginning, compared it to how amateur golfers often follow the lead of professionals when it comes to equipment.

If rank-and-file law officers saw the FBI agents and top cops wearing 5.11 uniforms, "it opens it up even to the Barney Fifes," Costa said, with a laugh.

To show his faith in the product -- and encourage loyalty to 5.11 -- Costa gave team members a small ownership stake in the company as part of their compensation.

As 5.11 added first a shirt and vest and then other products to the pants, demand outpaced, and sometimes even preceded, supply, Costa said.

"Early on, we could not make the pants fast enough," Sinclair recalled. When supply was months behind, buyers would wait, rather than buy another company's pants.

"It continually spoke to the brand," Sinclair said.

Costa's Six, and many other 5.11 employees, went at a breakneck pace to make the brand grow. Reynoso joked that 50- to 60-hour weeks would've been half time at some points.

"I'm so young, I just learned that that's the way it is," said Reynoso, who became 5.11's vice president of marketing. "Small things added up to an explosion."

And explode it did.

Most of 5.11's clothing line is made in Asia. Morales said factories that started making 5,000 units per month a few years ago are making 40,000 a month now.

Sales have doubled almost every year, 5.11 gear has showed up in movies, and the company opened a new warehouse and headquarters in north Modesto, after starting in a Royal Robbins spillover warehouse on Kearney Avenue.

Not long ago, Morales was on business in Hong Kong, waiting for a flight to Indonesia. He noticed Hong Kong SWAT police in 5.11 gear moving through the airport.

"It's very tough now for me to take a trip and not see 5.11 product at the airport," he said.

15 offers from which to choose

When TA Associates of Boston became interested in acquiring 5.11's majority share, a spokesman said, Costa's reputation and that of his top people were a mark in the company's favor.

"Dan Costa is a successful serial entrepreneur, and he has surrounded himself with an equally capable and aggressive team," TA spokesman Jon Kossow said in an e-mail. "We find that very attractive."

That company beat 14 other interested buyers with what Hamilton and Costa called an offer they couldn't refuse.

"It's just as much relief as reward," Hamilton said of the completed sale. "We felt we had to get the ball over the last inch to the goal line.

"But it's not the last game we're going to play."

After the sale, Costa bought back 20 percent of 5.11 Tactical from TA Associates, and the company agreed to keep his senior management team in place.

Although Costa's team shied away from talking specifics, it's reasonable to assume the sale of their "stock" made them millionaires.

But with plans to begin selling uniforms to firefighters, and more law enforcement agencies, Costa's Six agreed there's still heavy lifting to be done.

"It's exciting, but we have so much work to do that there's no time to think about it," Morales said of the sale, adding that he splits his time between his home in Modesto and business in Asia. "It becomes your lifestyle when it's something you do all the time."

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

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