Paul Van Doren thinks leveraged buyouts are as American as hot dogs, apple pie and sneakers.
In fact, he was pleased when Van Doren Rubber Co., the Orange-based tennis shoe company that he founded 23 years ago, was taken over in a leveraged buyout arranged by McCown De Leeuw & Co., a San Francisco venture-banking firm.
In Van Doren's view, LBOs don't deserve the black eye they have received in recent years. Millions of Americans, he said, have been using them for years to finance their home purchases.
"We can't afford to buy a home for cash, so we finance it," he said. Buyers pay off the loans from their salaries and sell their homes later at an appreciated price. "That's how we get ahead," Van Doren said.
Business LBOs are much the same. The buyers borrow most of purchase price, using the assets of the firm being purchased as collateral for the loan. The debt is repaid from the firm's cash flow. In many cases, the company is eventually sold at a higher price.
McCown De Leeuw certainly hopes to come out ahead on the "mortgage" it took out a year ago to finance the $71-million buyout of Van Doren Rubber Co., maker of the popular Vans and Off The Wall brands of tennis shoes.
The type of LBOs arranged by George E. McCown, chairman of McCown De Leeuw, contrast with the greedy grabs for corporate assets that have fascinated Wall Street for several years.
McCown says his firm takes a "classic" approach to LBOs, one that calls for pumping in money, boosting production and paying off high-yield "junk" bonds from higher earnings, not from asset sales.
And earnings have indeed risen. Since it was founded in 1984, McCown De Leeuw has provided its investors with an average annual rate of return of 160% on companies it has bought and sold.
So far, McCown De Leeuw is having little trouble besting the pre-buyout performance of Van Doren Rubber Co. That is partly because Paul Van Doren, by his own admission, had been satisfied with existing profits and "too tired" of running day-to-day operations to improve the company's performance.
In the year since McCown De Leeuw took over in February, 1988, the production rate at Van Doren Rubber has jumped 43% to 60,000 pairs per week, shoe sales are running 44% higher, and total revenue is expected to rise 20% to $52 million by May 31, the end of the company's fiscal year.
In addition, exports have grown to 25% of sales from 10%, the number of employees has increased by about 240 to more than 1,320, new retail outlets have been added and a new clothing line is being introduced.
As a private company, Van Doren Rubber won't disclose its profits.
The story of Van Doren Rubber is usually told in two chapters: the firm's fast rise to national prominence after its black-and-white checkerboard sneakers were featured prominently in the 1982 teen movie "Fast Times at Ridgemont High," and its fall into bankruptcy in 1984.
Van Doren Rubber Co. was founded in 1966 by Van Doren and an investor, Serge d'Elia, a Frenchman who lived in Japan. Later, Van Doren's younger brother, James, and an executive, Gordon Lee, were each given 10% stakes in the firm.
Paul Van Doren ran the company until 1976, when the four owners equalized their stakes in the firm and James Van Doren assumed control.
Over the next 8 years, James Van Doren tried to put the company on the map by building its manufacturing operations, doubling its work force and expanding its product line into the highly competitive world of specialty athletic shoes.
While it tried to absorb the costs of the expansion, the company was squeezed by dwindling sales as cheaper foreign imitations hit the market and the Ridgemont High fad began to fade. The firm lost $3.6 million over a 21-month period and, finally, filed for protection from creditors in federal bankruptcy court.
The company emerged from bankruptcy in late 1985 with a plan to pay off all its debts in full, except for interest to unsecured creditors. At the insistence of some creditors, it also emerged with James no longer involved in the company.
Paul Van Doren, who returned to the helm of the reorganized company, said he hasn't seen his younger brother since he, Lee and d'Elia bought out James' interest and ousted him.
Except for its temporary decline, Van Doren Rubber has been a solid, profitable little company. It relied on an unusual manufacturing concept to produce unique shoes with waffle soles and a plethora of colors and designs that caught the imagination of the surfing and skateboarding sets.
So well-oiled was the production operation when it was sold, McCown said, that the only change McCown De Leeuw made was to hire Richard Leeuwenburg as president and chief executive.
Van Doren remained as chairman. Lee became vice chairman, and d'Elia continued in his role as a consultant to the firm. The three founders own a small, unspecified share of both Van Doren Rubber and McCown De Leeuw.