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Beach Grit

Biz: RVCA founder’s $37 mill payday!

Jazzy P

by Jazzy P

Why Pat Tenore is the smartest cat in the surf game… 

How much do you know about the RVCA story? It’s as odd as it is mysterious.

Two twenty-somethings start an underground surf label in 2001. One is the pro surfer, Conan Hayes, the other is a designer, Pat Tenore.

“Our relationship has always been ‘One foot in a limo, the other in the gutter,’ meaning we’ve always been fortunate enough to view and see many things that aren’t normally accessible for a pro surfer and a designer,” Tenore said at the time. Their debut range was called the “Recession Collection.”

Almost a decade later, Conan had sold his share for $7.5 mill, apparently to Tenore, but the newly minted multi-millionaire would later be charged with fraud after allegedly short-selling his house.

What’s a short sale? In the US, if you’re doing it tough, a bank agrees to the sale of a home for less than the amount owed on the loan. In Conan’s case, the bank claims he fraudulently told ’em he was unemployed and broke hence the sale. The bank says it lost $586,245 on the short sale.

The prosector in the case was so zealous in hunting Conan she illegally obtain his tax records. Conan’s bail was set at exactly the amount the bank says it lost.

It gets weirder.

Pat Tenore Snr, an Orange County realtor and daddy to Conan’s former partner, facilitated the short sale. (No wrongdoing is alleged on his behalf although the prosecution is attempting to limit contact between Pat Snr and Conan.)

And, then there’s the sale of RVCA to Billabong shortly after Conan apparently sold his piece to Tenore.

What’s mysterious about the sale are the words “undisclosed amount” given for the price of the sale. And while I was digging around financial statements in the post-Quik buyout the words “RVCA Compensation” kept popping up.

So how much did Billabong pay for RVCA, a company the Wall Street Journal estimated to be worth US$50 million in mid-2013 and what was the “RVCA compensation”?

As with any good deal there was a cash amount, some targets to hit (for more cash) and a share-option grant.

But what strikes me as odd in this deal is that there appears to be no cash laid out up-front for RVCA.

All the cash (or at least the majority) was deferred till after July 1, 2015 (five years after the sale date). Those targets aren’t available for public scrutiny. I’m assuming Tenore, who is forty four, had a pretty salary, so the prospect of waiting five years for the big pay day wasn’t too tough.

On Feb 6, 2014, Tenore signed a four-year contract to remain at RVCA till 2018. With this came a slight restructure to his ‘earn out’ from the acquisition contract he signed in 2010. Pat pocketed $20 million cash, had a $7.5 million loan forgotten about (Was that the money that paid-out Conan? It ain’t clear.) and was granted 1.2 million share options in Billabong (worth about $720,000).

Over four years, the total “earn out” package, as they like to call it, looks like it was worth $37 million in guaranteed cash. A further $45 million would be earned if performance targets were hit before 2018. However, as at 31 December 2017 Billabong reported that the targets are unlikely to be met.

In 2017 Billabong wrote down the goodwill on RVCA from $78.1 million to zero.

Weird? Odd? Mysterious? Confusing?

That’s surf biz!