K2 Chief Racing to Consolidate
Richard Heckmann has no problem leaving others behind.
Once on an East Coast business trip, the then-chairman of USFilter wanted to hurry back to California to make his son’s baseball game. When the water company’s executives gathered at the airport for the flight home, one manager was missing. Heckmann ordered the private aircraft to take off without him.
“He has left more than one division president behind for being five or even just two minutes late,” said Andrew Seidel, a key member of Heckmann’s team at Palm Desert-based USFilter and now the chief executive.
But it’s not only on the tarmac where Heckmann waits for no one. The 59-year-old moves equally fast in the business world.
In less than a decade at USFilter, he completed 260 acquisitions, turning the company from a tiny player with $17 million in sales into a $5.5-billion industry leader by the time it was sold in 1999 to French utility Vivendi for $6.2 billion. He walked away with more than $120 million.
Now, as chairman and chief executive of K2 Inc., a Los Angeles-based sporting goods manufacturer, Heckmann wants to leave the rest of the industry behind by gobbling up scores of smaller companies to create a giant.
Heckmann’s first move came Monday when he signed an $84-million deal to acquire Rawlings Sporting Goods Inc., the 115-year-old company that invented football shoulder pads and now supplies more than half of the baseball players in the major leagues with their fielding gloves.
If the deal is completed despite the objections of Rawlings’ largest shareholder, baseball equipment will join Shakespeare fishing rods, Olin skis, Ride & Morrow snowboards and Tony Hawk skateboard shoes on K2’s product roster.
“We are going to lead the consolidation in the sporting goods industry,” Heckmann declared.
His ambition is no less than turning K2, which reported a $7.7-million loss on $595 million in sales last year, into a profitable Fortune 500 company.
Reaching Fortune 500 status “was the goal at USFilter from the first day,” Heckmann said. “It took us seven years to do it.”
But it wasn’t always the goal of K2, whose roots go back to a post-World War II pool-contracting business in suburban Los Angeles. For years the company was content to grow slowly, gradually expanding its product offerings.
Heckmann joined the board as a peacekeeper in 1997 when K2 was beset by infighting and litigation. He also brought several board members from USFilter, including UCLA business professor Alfred Osborne Jr. and former Vice President Dan Quayle, and became chairman in April 2000.
Heckmann grew impatient with the pace of the company’s growth. He saw the sporting goods industry as fragmented and ripe for a roll-up in just the same way that water filtration was splintered when Heckmann and a group of investors took over USFilter.
In October, Heckmann led a coup against Chief Executive Richard Rodstein, forcing his ouster.
“We looked at the sporting goods landscape and asked why aren’t we the company out there doing the consolidation,” Heckmann said. “But it takes a different type of executive to go out and consolidate an industry than what we had.”
Rodstein did not return calls seeking comment.
Adding to Heckmann’s sense of urgency was the slumping stock market and slowing economy. “We want to be doing this at the bottom of the market rather than at the top,” he said. “We didn’t have any time to waste.”
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Fast Off the Mark
Colleagues say Heckmann will get K2 moving quickly -- both literally and figuratively. He plans to move the corporate headquarters in March from an industrial section of Los Angeles to Carlsbad. It will be nearer to his home in Del Mar, as well as to other sporting goods manufacturers, making it easier for K2 to recruit executive talent.
“Clearly his strength is at crafting a vision and communicating it in a way that most people can gravitate to,” Seidel said.
But at the same time, “he could go pretty ballistic at times,” Seidel recalled. “It was something that you got used to. He is certainly an acquired taste for some people.”
As Seidel discovered during USFilter’s merger binge, those who didn’t acquire the taste often found themselves in Heckmann’s sights.
“He has this wonderful theory,” said Seidel, “that he calls ‘shoot the lead elephant.’ When you do these acquisitions you have to decide very quickly whether the management team is on your side or not.
“We had situations where the managers of the company we had acquired thought it was the reverse. I saw him shoot the lead elephant a number of times.”
As Heckmann returns to the corporate jungle after a two-year hiatus he is confronting a different place, especially when it comes to the type of all-stock transaction that worked so well for USFilter. “That was the ‘90s,” Seidel noted, “when you had a lot of room for error because equity prices were so high. But this is a different environment now.”
Still, Heckmann is convinced that snapping up a series of smaller rivals and building a behemoth is the way to go. “If you are going to deal with big retailers, they want scale,” he said. “They want you to advertise, they want help with their aisles, they want you to help them sell more products.”
He also believes that scale in overseas manufacturing and outsourcing will be a key advantage in the decidedly low-technology business of making sporting goods.
K2 has shifted all of its domestic production to 1 million square feet of factory space in a Guangzhou, China, complex that includes dormitories and food service for 6,000 workers.
“We have to look for companies that are either too small or too slow to understand the advantage that comes with setting up manufacturing offshore,” Heckmann said.
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Looking for Synergy
Finally, K2 won’t consider an acquisition unless it sees a clear advantage from shared manufacturing or shared distribution.
“If you have a team going to a retailer selling fishing rods, why can’t you also sell them basketballs or baseball bats?” Heckmann said.
Yet even before the Rawlings merger is closed, competitors are challenging Heckmann’s strategy.
“You can become a jack of all trades and a master of none,” said Tony Palma, chief executive of Van Nuys-based Easton Sports, which is a top brand in baseball and hockey equipment.
Although Palma credits Heckmann with “a fabulous job of rolling up the water filtration business,” he questions whether the sane techniques will work with balls, bats, skis and fishing gear.
“Water is a homogeneous product; sporting goods is not,” Palma said. “There is no synergy between snow skis and baseball gloves. Every sporting goods category is a separate and distinct business with its own unique selling approach.”
Jesse Heald, chairman of Worth Inc. a Tullahoma, Tenn.-based maker of baseball and lacrosse equipment, agrees.
“Different sports have significantly different dynamics to them,” Heald said. “That is why the industry is made up of a bunch of smaller companies, each with their own technology, their own market and their own sales expertise.”
Heckmann also will face a most formidable challenger: the ever-more sedentary American.
The sports equipment market is growing slowly at best, according to SGMA International, the industry’s trade association. Sales of baseball equipment have not risen since 2000. Basketball sales are up only slightly from two years ago. Football sales haven’t budged since 1994, and volleyball sales have plunged 18% over the last eight years.
Sales of all sporting goods -- from bats and balls to running shoes and fitness equipment -- fell 2% last year to $47.7 billion, SGMA said.
That compares with a 21% gain in the consumer electronics market and a similar jump in box-office revenue for the nation’s top 50 movies last year, Gregg Hartley, an SGMA vice president, pointed out this year in a trade report.
“Our real competitors are any companies that vie for leisure time and entertainment dollars of American consumers,” Hartley said.
“People aren’t turning to sports for fun the way they did a generation ago,” Hartley added, noting that television network viewership of professional baseball, basketball and football has declined during the last decade.
Heckmann acknowledges that the industry faces difficult economic challenges, but says that to delay would risk K2 being left on the tarmac.
“The fun part is figuring out how to grow the business,” Heckmann said. “When K2 hits the Fortune 500, I hit the road.”
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(BEGIN TEXT OF INFOBOX)
Richard Heckmann
Age: 59
Family: Married, with six children ages 14 to 30
Education: Attended University of Hawaii before joining Air Force in 1962
Residences: Rancho Mirage, Del Mar and Sun Valley, Utah
Past positions: chief executive, USFilter (1990-99); associate administrator for finance and investment, Small Business Administration during the Carter administration; founder and chairman, Tower Scientific Corp. (1972-1977); stock broker, Prudential Bache Securities (1982-1990)
Favorite sport: Golf
Favorite charity: UC Riverside’s Heckmann School for Entrepreneurial Management
-- Jerry Hirsch
