(FORTUNE Magazine) – THEY ARE the uncrowned kings of un-cola, the segment of the soft drink market that includes 7 Up, Sprite, ginger ale, root beer, and other beverages commonly known as mixers. But Thomas Hicks and Robert Haas are not going to be living incognito much longer. The two Dallas dealmakers not only control one- third of the $11.5 billion noncola market, but in the past two years have also become the third-largest pop purveyors in the country, after Coca-Cola and PepsiCo. Since 1986 Hicks & Haas, the name of their leveraged-buyout firm, has led separate groups of investors in buyouts of Dr Pepper, Seven-Up, and A&W Brands, the root beer company. Taken together, the Hicks & Haas confederation accounts for about 12.1% of the $38 billion retail market for soda pop -- up from 10.8% a year ago, according to Beverage Digest. By contrast, Coke has 40.3% and Pepsi 30.2%. The H&H brands are clearly on a roll: Dr Pepper's sales / grew last year at a rate four times the industry average, and Seven-Up, after eight years of abysmal earnings under Philip Morris, finished 1987 with record operating profits. When Tom Hicks, 42, and Bobby Haas, 40, teamed up to do deals in 1984, their equity was a wealth of contacts in the venture capital community. Both had also dealt with virtually every major investment banking firm in the country. Hicks, a native Texan, spent a few years working for Morgan Guaranty's venture capital group in New York City before returning to Dallas at age 28 to run InterFirst Corp.'s venture capital subsidiary. A former securities lawyer, Haas was the president of a venture capital firm, Intercapco, in Cleveland. The two met in 1978 when Hicks was scouring Cleveland for money to back a buyout of an oil field service company. They got along right from the start. They still do. Hicks, with his easygoing manner and Texas twang, was initially Mr. Outside bringing in both ideas and financial backing from his many local contacts. Haas, a tenacious negotiator, handled the dickering. But their roles have blurred since. Asked if he played Mr. Inside by choice or necessity upon his move from Cleveland to Dallas, Haas says deadpan, ''You're not suggesting that because I'm Jewish, and because I'm from the North, and because I have long hair and a beard, that that would have any effect on my doing business here?'' Hicks, who named his fourth son for Haas, adds, ''Bobby doesn't act like he looks.'' Though their financial muscle was modest -- the partners started their firm with $250,000 in borrowed capital -- they reckoned on doing $1 billion worth of deals in their first ten years. Last year they passed the $2 billion mark, having bought out 12 companies since they started. In 1987 alone, Hicks & Haas engineered more than $1 billion in buyouts, including those of Spectradyne, the leading provider of cable TV and pay-per-view movies to hotels, and Sybron, a producer of dental and laboratory products. As Haas once said: ''We are a good example of the old adage that we worked our entire lives to be an overnight success.'' The partners have proved to be very savvy buyers, but the real test will come later when they have to sell their companies in order to produce returns for their investors. Those investors, whose fees pay the rent on the elegant, high-ceilinged offices from which Hicks and Haas look out over the Dallas skyline, show no signs of restlessness. Nonetheless, the only company Hicks and Haas have sold so far is A&W, which they took public last spring. Unlike many of the big LBO firms, which raise large pools of capital that can be tapped at will to finance their deals, Hicks and Haas recruit their investors one deal at a time. They seldom take more than 15% to 20% of the equity for themselves, and they usually pay for part of that by reinvesting the healthy fees they charge -- as much as 2% of the price -- for coordinating the transaction. Neither Hicks nor Haas has any management role in their companies. Once a deal is done, they let their manager-partners, who sometimes have bigger equity stakes in the company than they do, run the business with very little interference. They watch over their investments informally by chatting occasionally with the CEOs and formally by presiding as co-chairmen of the board at quarterly board meetings. This hands-off policy places a premium on getting a strong executive to oversee the company. ''The No. 1 decision we make is on people,'' says Hicks. The partners will go to extraordinary lengths to get the manager they want. For about a year H&H kept James Mills, a former executive vice president of McGraw Edison, on salary and let it be known on Wall Street that his managerial abilities and their financing expertise were available for the right deal. The right deal came along in mid-1986, when Hicks & Haas, Mills, and other investors bought Clarke Floor Equipment Co., a manufacturer of floor-cleaning equipment that was formerly a subsidiary of McGraw Edison. Mills now heads the management group that runs both Clarke and Palco, a maker of metal-cutting and welding equipment that H&H bought last September. Since Mills has been running Clarke, he has increased sales and earnings and, more dramatically, cash flow. SOFT DRINK COMPANIES account for 43% of Hicks and Haas's investments. They put their first straw in the waters in early 1985, after a Dallas businessman told Hicks that Dr Pepper wanted to sell its local bottling operations. Hicks and Haas met James Turner, the chief of Dr Pepper's company-owned bottling plants, who laid out a series of steps to operate the bottling business more efficiently. ''One meeting with Jim convinced us that he was the right guy to be in business with,'' says Hicks. ''It was very apparent that he had the experience. You could see it on paper. But just talking with the guy, you could tell he knew the business cold.'' With Turner and his management group on board and a strong lending commitment from Dallas's MBank, the partners were able to raise the $95 million needed to buy the bottling company. As bottlers, they quickly concluded that there was yet a sweeter formula for success in owning a company that produces the concentrate independent bottlers buy and turn into Coke, Pepsi, 7 Up, and Dr Pepper. H&H liked four things about that side of the business: The margins are high; concentrate makers can raise prices steadily because bottlers won't easily switch to other brands; there isn't any foreign competition; and the business doesn't need much capital. Jim Turner soon introduced them to A&W, a root beer producer in White Plains, New York, whose owners were eager to sell. In May 1986, Hicks & Haas, along with A&W's management and other investors, bought the company for $72 million. About the same time, Hicks and Haas were also quietly bidding for Dr Pepper. The day the Federal Trade Commission aborted Coke's agreement to buy Dr Pepper on the ground that the purchase was anticompetitive, the two partners raced in with another offer. They wrapped up Dr Pepper in August for $416 million, and two weeks later they were on the prowl again. This time their agent was Dr Pepper's chief executive, John Albers, who scrawled on a paper napkin over breakfast one morning the case for buying Seven-Up's domestic operations. He believed that by pruning Seven-Up's excessive payroll and figuring out better ways to utilize its St. Louis production plant, he could immediately restore the company to profitability. In addition, consolidating the two companies would benefit Dr Pepper as well by spreading its costs over a broader base. Albers had once tried unsuccessfully to interest Philip Morris in selling Seven-Up to Dr Pepper. But Pepsi also wanted it and had struck a deal with Philip Morris to buy the company when the same FTC decision that had denied Coke Dr Pepper also blocked Pepsi from buying Seven-Up. ''It was a plum sitting there for us,'' says Albers. ''I told Hicks and Haas we had to have it. They threw their hat in the ring the next day.'' Hicks and Haas took Albers and a small team of Dr Pepper executives to St. Louis, where Philip Morris had invited potential bidders to hear presentations by Seven-Up managers. The contingent from Dallas waited in Seven-Up's lobby for a couple of hours until a Philip Morris lawyer advised them that, for antitrust reasons, no Dr Pepper people would be allowed to sit in on the briefings. But Hicks and Haas themselves were welcome. Says Tom Hicks: ''What Philip Morris was telling us was that the co-chairmen of Dr Pepper could come in because we didn't know a damn thing about the soft drink industry.'' THEY KNEW ENOUGH to want Seven-Up, and they began to structure a deal. Their initial plan -- to have the same investors who had bought Dr Pepper also buy Seven-Up -- fell through when Cadbury Schweppes, the British soft drink company, and Shearson Lehman Brothers both backed out the day before bids were to be submitted to Philip Morris. Not willing to give up, Hicks and Haas hustled over to Salomon Brothers, with whom they shook hands on a deal in the small hours of the next morning. But later that day Salomon Brothers also withdrew.

Livid, Hicks and Haas started over again. By midnight they had substantial commitments from Donaldson Lufkin & Jenrette, Citicorp, and Bankers Trust. Two days later, Monday, they had the rest of their $240 million offer fully financed. ''That weekend had more to do with determining the future of our firm than any other period,'' says Haas. ''It was simultaneously the most disappointing, depressing, awful experience and the most exhilarating, fascinating, upbeat period we've ever spent.'' Because different investor groups own Dr Pepper and Seven-Up, Hicks and Haas devised a unique cost-sharing arrangement that allows John Albers and his senior executives at Dr Pepper to manage both companies. The two split the costs of market research, purchasing, accounting, and all other common costs. Seven-Up pays Dr Pepper an annual fee of $5 million -- more if Seven-Up's profits exceed certain levels -- for the management expertise contributed by Albers and his crew. Though separately owned, Haas says, the two companies are ''Siamese twins joined at the head, the hip, and the foot.'' What Albers and his fellow Peppers found when they finally got past the Seven-Up lobby was a company bloated with inventory, unused equipment, and unnecessary people. At its huge concentrate-manufacturing plant in St. Louis, Seven-Up had enough of some product ingredients to last 2 1/2 years. New 300,000-gallon mixing tanks sat unused. The top-heavy organization chart was filled with marketing managers busy devising fancy campaigns that had little reference to the needs of the company's independent bottlers who are its salesmen. Seven-Up had been a chronic money loser, steadily surrendering market share. Last year it earned $40 million in operating profits on sales of $300 million. Albers unloaded the company's two office buildings for $15 million and kept only nine of the 330 employees who had occupied them. He moved Dr Pepper's syrup and concentrate production to Seven-Up's plant, which within six months was pumping out enough to satisfy both companies' annual needs. Albers also raised the price of 7 Up concentrate 14% so that the cost was more in line with what Coke charges its bottlers for Sprite. But he softened that blow a little by consulting with the bottlers on promotional strategies and new product ideas. Albert Coughlin, president of a major 7 Up bottler in Columbus, Ohio, says the ''old'' Seven-Up management tended to let bottlers know about strategies after the basic decisions had already been made. The new team, he says, ''is seeking our input and then making decisions.'' Seven-up had some key bottlers preview a new ad campaign. Intended for Saturday morning children's shows, the ads star Freddie the Slasher, a Frankenstein monster-like TV character whom the bottlers felt gave the beverage a negative image. They protested Freddie. Seven-Up agreed to reconsider the campaign, and a decision on whether to air it has not been made. Says Russell Klein, senior vice president for marketing: ''It's not that Philip Morris never did anything the bottlers wanted and that we always do everything the bottlers want. The real difference is that we are more comfortable exposing ourselves to the cross fire.'' What has kept the cross fire from becoming a firefight so far are the carbonated sales Seven-Up has enjoyed in the first year of the Hicks & Haas reign. A year ago the company launched Cherry 7 Up, which has already gained a 1% market share -- a blockbuster start in an industry where companies claw for fractions of every percentage point. Says James Harford, a former bottler whom Albers brought in as president of Seven-Up: ''Bottlers are happy when their volume and profits are up -- no matter who's heading the ship. But I think they believe we are dedicated to turning the company around.'' A&W Brands has also bubbled under Hicks & Haas's benign neglect. After puttering along for years peddling root beer, A&W has in the past two years acquired Squirt, a company that makes a grapefruit-based drink, and Vernors, a Midwest firm whose main product is a spicy ginger ale. Two years ago it gave birth to A&W Cream Soda, a product that Montgomery Securities analyst Emanuel Goldman calls one of the two hottest soft drinks of 1987. The other, he says, is Cherry 7 Up. The introduction of Cream Soda and acquisition of Squirt so enhanced A&W's appeal that last spring, a year after they bought the company, Hicks and Haas took A&W public. The market for initial public offerings was strong at the time, and the sale of 41% of the company's stock fetched $37.4 million. Hicks & Haas retained a 16% stake. WHILE the two partners may guzzle a few more niche brands, they and their operating managers are determined to abstain from the cola wars, where they would have to take on Coke and Pepsi and likely get creamed. Royal Crown, the only nationally distributed cola besides Coke and Pepsi, is for sale, but the Hicks & Haas strategy is to quaff only those brands that are the premier pops in their categories. Though the value of the three soft drink companies has clearly increased while they have been in the Hicks & Haas fold, the gains are still on paper. Neither Hicks and Haas nor their investors have actually seen any return on their holdings in soft drinks, save for A&W, or in any of the other buyouts. Sooner or later the two partners will have to prove that they can sell as well as they buy.