Ronald DeVane, of South Trust Bank in Dothan, agreed to back the bond placement but had a condition of his own: Danielly had to line up a customer with a long-term contract. The request flabbergasted Danielly, who had sold gloves for 20 years and couldn't believe someone doubted his ability to move gloves during a shortage. Says DeVane, "I thought his plan sounded great, but I wanted to see some firm orders."
He did. By February 1987 Danielly had closed a $25-million order, to be delivered over five years. "I had been a salesperson my entire life and had never seen a $25-million order," says Danielly. Then DeVane had the audacity to ask for another contract, and again, Danielly delivered.
In addition to helping secure the bond issue, those contracts substantially reduced the risk to potential investors and increased the value of the cofounders' stake. With customer promises and market timing on Danielly's side, his high-priced stock became more attractive. He had rustled up five private investors by the spring of 1987.
After months of negotiation with them, Danielly reluctantly gave up control of Aladan and traded just over 50% of the stock for almost $2 million. To this day, Danielly insists he undersold Aladan to investors, but at least the sale got the ball rolling.
As the first factory was going up, word was out that Aladan was a go, and more customers began queuing up for gloves. Danielly drew up ever more shrewd customer-payment terms as demand picked up. When the market was peaking, five major distributors were willing to pay up to 90 days in advance on long-term contracts. Danielly even worked in a clause that would pass the cost of latex-price fluctuations on to the customer, insulating Aladan from risk. All that poured almost $10 million into Aladan over 12 months in 1988 and 1989. The contracts would fund the building of additional machinery that would fulfill customers' demands.
Henry Berling, senior vice-president of sales and marketing for Owens & Minor Inc., a $1.4-billion distributor of hospital supplies based in Richmond, Va., was an original Aladan customer. "I knew Julian was out hunting for money, and we needed gloves, so we contracted with Aladan to build production for us. If it hadn't been for the contracts, we probably would have bought gloves from Ansell, our original supplier, when demand dropped and we didn't need as many." Today Berling continues to buy about half his gloves from Ansell and half from Aladan.
Another $5 million came from a handful of customers who issued letters of credit to Aladan's bank for a year's worth of glove payments, to be paid out to Aladan as it delivered gloves. Those funds in turn were used to underwrite a bond offering by Merrill Lynch, which earned an impressive AA rating.
At the same time, another $11 million in industrial-development bonds were issued by Eufaula, Ala., where a second factory was to be built. Flush with cash, Aladan purchased the entire offering itself, saving the hundreds of thousands it would have paid in taxes had it paid for the factory out of pocket.
Danielly's ability to leverage equity was a big factor in the success and ongoing stability of Aladan. It also impressed the Entrepreneur of the Year judges: "His ingenious use of industrial-development bonds impressed me," says Bank of Boston's Diane Fulman. "He was getting letters of credit from customers to underwrite bond offerings. Also, the exclusive long-term contract seemed to be a coup that was well-thought-out on his part."
In February 1989, when the market was glutted and factory capacity was idle, $9 million worth of customer advances were sitting in Aladan's bank account. Still eager for majority control of Aladan, Danielly used profits to buy out a couple of investors, who walked away with up to 10 times what they had originally paid in, less than a year earlier.
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Danielly would rather have been almost anywhere than three miles down the road from Ansell, in Dothan. "I didn't want to be a bigger sore in Ansell's side than we had to be," he says. But Dothan, the self-declared peanut capital of the world, had come across with substantial tax incentives, had a small airport, and was home to Povlacs.
Before the Dothan facility was even completed, Aladan already had enough guaranteed orders to keep eight machines busy. The company started building its second plant 45 miles up the road, in Eufaula, which offered tax breaks and a water-treatment facility that even Dothan couldn't compete with.
On the Eufaula ground-breaking day, in May 1988, the glove boom was peaking. The cost of latex had more than doubled since Aladan had purchased a year's worth to cover the orders the company had lined up. Bill Kleinhoff, the Eufaula plant manager, remarked to Danielly that the company could skip building the plant and cash in its latex futures for an easy $13 million in profit. Danielly built the plant anyway.
By February 1989, two months after the addition of the Eufaula facility had doubled the company's factory capacity, Aladan was operating at 25% of capacity. The distribution pipeline was choked with gloves, many from overseas. Import records from the U.S. Bureau of the Census show that surgical-glove and medical-glove imports skyrocketed from a total declared value of almost $37 million in 1987 to almost $400 million in 1988.
Distributors who had signed purchase agreements just months before came hat in hand to Danielly, asking him to relax delivery and payment schedules. Since they'd paid in advance for their gloves, their negotiating power was practically nil. Legally, the tiny start-up had those distributors over a barrel, but Danielly was more interested in building long-term customer loyalty -- a priceless asset in a commodity market.
