Establishing the foundation
Heckmann began his career as a stock broker, and he used his knowledge of what captivates Wall Street in formulating his strategy and planning his first moves.
“My lead card was to shore up our financial situation, so I called a friend and raised $25 million,” says Heckmann. “Following the change in leadership and business strategy, the company’s stock price began to rise upward toward $10 per share, enabling me to raise even more money.”
In 2005, K2 had sales of $1.3 billion, but just three years earlier, in 2002, that number was around $580 million. The company needed to diversify its product offerings through
acquisitions to be competitive in the new retail landscape.
Heckmann set his sights on acquiring legendary baseball glove manufacturer Rawlings because the ensuing merger would significantly increase the size of the organization.
“I wanted to find the biggest, highest-profile deal that I could find because I wanted to get the attention of Wall Street,” says Heckmann. “We were a one-trick pony, we were
snow farmers. With Rawlings, we achieved visibility, and they were counter-seasonal.”
Heckmann says that the Rawlings acquisition began to build a portfolio of brands providing K2 with marketing synergy opportunities, and the additional product lines established an expansion platform that could be enhanced through future acquisitions, such as the addition of baseball bat manufacturer Worth.
Besides repositioning K2 as a player in the minds of investors, Heckmann says that the Rawlings acquisition began to cause a shift in the attitude of the company’s employees.
“The most important thing about the Rawlings acquisition is that it gave our people a reason to feel proud again and a reason to believe,” says Heckmann. “Now it was fun to be with
the company again.”
He says that his predecessor at K2 was paralyzed by the thought of risks, and the company stagnated. Heckmann, rather than avoiding risk, uses a methodology for evaluating the pros and cons of each deal, looking for conditions that he says often correlate to success.
In addition to evaluating the opportunity for increased marketing synergies, he looks for companies that are manufacturing domestically so that he can shift that function
overseas and further leverage K2’s excess capacity in China — a move that instantly increases margins. Since beginning this practice, K2’s employee base in China has increased
from 2,000 workers to almost 10,000.
“I also look for companies who are underdistributed on their brands because what we bring to the marriage is additional reach,” says Heckmann.
The additional sales through the expanded distribution network help to pay the cost of the acquisition, and he often uses the increased margin from the outsourced manufacturing to offer incentives to retailers, which further increases sales.
His pre-acquisition analysis includes running numerous financial models that reflect the worst-case scenarios that might occur after the purchase so he can avoid a fatal error.
"Every decision you make in business is fatal to something,” says Heckmann. “You just never want to make the decision that’s fatal to the company.”
That type of review has caused Heckmann to pass on acquiring ski makers Rossignol and Salomon. With K2 now owning a dominant share of the ski market, he says that the
potential downside outweighed the upside, and should the ski market become soft, it could be the tipping point from which the company could not recover.