This paradigm shift would have a profound effect on growth and the need for additional financing at 180s. For one thing, sponsoring Team 180s was costly. More important, where the three big sporting goods companies had perhaps 1,500 to 2,000 stores, the department store chains had 15,000 or more. As a result, Besselman explains, 180s "went from a two-year return on investment to a three-year return."
Wilson's departure in 2003 was hastened by a controversial plan for a stock buyback. The plan split the company's executives and investors, with Wilson wanting to take some money off the table while Le Gette believed the company was not in a position to hand out cash. But Wilson, who was in the midst of a messy divorce, insisted. "Ron needed the money," says Le Gette.
In part because some of the newer investors wanted out as well, Le Gette eventually caved. In the ensuing buyback, stock was priced at $80 a share, and the value of the company set at what former CFO Mason thinks was a realistic $45 million to $65 million. Those who cashed in "made off like bandits," says Besselman. Most of the original investors stayed put -- "and were left holding the bag two years later," he adds ruefully. Shortly after the buyback, Wilson left the company.
Most important, the buyback brought additional pressure, costing money that the company did not have to throw around -- as much as $3 million, according to Besselman. It seemed as if 180s always needed more capital, both to finance the growth in ear-warmer sales -- which required a huge cash infusion every year -- and to finance the never-ending search for a second successful product. In early 2004, the company turned to Chicago-based Trans Cap Trade Finance for a $20 million line of credit. "Chasing after money was our bane," says Mason, who left that November to join another Baltimore-based company as its CFO.
"In the end," says an original investor, "they grew the top line, but they didn't manage the bottom line. They got sucked into the vortex."
By late that fall, executives within the company knew the problems were getting serious. The complexity of the company's finances had by now become "overwhelming," says Le Gette. Having tapped out his original investors -- not to mention having already "taste-tested every type of debt instrument you can imagine" -- he began looking desperately for a financial angel. "In the end," says Besselman, "they grew the top line, but they didn't manage the bottom line. They got sucked into the vortex."
That happened in 2004 when the revenue stream stalled at $50 million, which wasn't nearly as big as Le Gette had anticipated. The initial Marine Corps contract hadn't been followed by the megadeal he'd promised. The Hummer of T-shirts, so far, was just another T-shirt, albeit one worn by a bunch of Marines in Iraq. All along, 180s had kept adding one debt or equity infusion on top of another. "They just kept bootstrapping," says Besselman. "They'd build a tenement house on top of a tenement house on top of a tenement house. That's how it was."
Besselman says he knew something was up when Le Gette stopped returning his phone calls. When Le Gette finally did call back, this past spring, he told Besselman, "We're falling apart a lot faster than I realized. We're in a really tight bind." By this point, Le Gette was working 14-hour days, six days a week, sometimes seven -- much of it trying to solve the financial mess. "Brian almost stopped being Brian," says Besselman. "His strength was the product."
An investment banker at Legg Mason eventually hooked Le Gette up with Lynn Tilton, the principal of New York City's Patriarch Partners, a private equity firm that specializes in distressed debt. Tilton arranged for Le Gette to get the financing he needed, although Patriarch won't say how much. "Low eight figures," is how Le Gette puts it. "Somewhere just south of $20 million," says someone with intimate knowledge of the company's finances.
But the financing came with a very steep cost. First, it gave Patriarch majority control of the company. Not only did Patriarch supply a big infusion of cash, it also bought out the debt holders and the institutional equity. That of course meant that the stock still owned by Le Gette and the original investors was now heavily diluted. "I'd say they'd be lucky to get 10 cents on the dollar," says Bernie Tenenbaum, a venture capitalist who used to run Wharton's entrepreneurial program and who considered investing in 180s at one point. Actually, it was eight cents.
One of those investors, Besselman, who'd been present at the creation, says he called Le Gette afterward and told him, "Forget the money. It's gone. It's you that we care about, dude. What can we do to help you?"
Le Gette assured him that he would be okay. "He always knew this might happen," says Besselman. "Brian said it was like he was in the jaws of the monster. In the end, I think he was just happy to get out alive."
Le Gette's last day at 180s was July 11. He took his monkey with him. His Patriarch-installed successor, Susan Shafton, took over his module on July 12. A former Deloitte & Touche management consultant and a veteran of the apparel industry, Shafton comes with operations, sourcing, finance, and strategy experience. Before taking over, she had spent a few days at 180s as an on-site consultant to Patriarch while Le Gette still ran the show.
How, she is asked, does she intend to solve the company's problems? Shafton laughs. Seated at a big conference-room table, she responds: "What problems?"
If anything, she says, 180s under Le Gette was too successful. Sustaining such high growth eventually required an infusion of significant additional capital, and that's what Patriarch's partners provided. "They fell in love with the product," she says. "I fell in love with the product."
She is vague about whether the company will return to its original marketing strategy of emphasizing the department stores. She's also vague about whether she thinks any of the products in the pipeline will counterbalance the ear warmers. And she won't say whether she expects revenue to be up this year or whether the company will make a profit. She does say that the company has to learn to manage its growth -- but that's better than trying to manage falling sales. "When a company goes from $50 million to $20 million," she says, "now that's a problem."
