By David Crane
defrev (at) gmail (dot) com
October 21, 2009
According to a regulatory filing, Cerberus Capital Management, L.P. is planning to take Freedom Group Inc. public in a $200 million ($200M) initial public offering. Cerberus owns 94.3% of Freedom Group’s shares, according to the filing. In H1 2009, Freedom Group, which owns a number of firearms and related companies that include Remington, Bushmaster, DPMS Panther Arms, Marlin, and now Advanced Armament Corp. (AAC), experienced a reported sales increase of 35 percent, making the timing for an IPO move look pretty good.
Reuters reports that “Freedom Group sold about 1.1 million long guns and 2 billion rounds of ammunition in the year ended June 30, 2009, according to its prospectus, filed on Wednesday with the U.S. Securities and Exchange Commission.” Freedom Group reported net sales of $427.3M for the six months ended June 30, 2009, which is up 34.9 percent over the same period a year earlier. Net income for the same 6-month period was $32.8M.
So, why the IPO plan? Freedom Group wouldn’t specify beyond saying that it was for working capital and general capital. But, capital for what? Probably to buy more firearms (and related) companies.
DefenseReview is not anti-Cerberus/Freedom Group, but we’re not exactly pro-Cerberus/Freedom Group, either–at least not yet. Steve Feinberg is simply way too secretive and enigmatic for us to trust or like him and Cerberus…yet. How can we? We don’t know him, or really anything about him, other than that he enjoys buying companies.
But, let’s say Feinberg and Cerberus have the best intentions possible, that they are as pro-firearm and pro-Second Amendment as it gets. Let’s say Feinberg’s a real mensch. They and he may be those things. But what happens if they (Cerberus, and thus Freedom Group) run into serious financial trouble? Let’s face it, they didn’t exactly knock it out of the park with its investment in Chrysler and GMAC.
What happens to all of the firearms and related companies listed above if Cerberus eats it? That’s a lot of eggs in one basket. If the basket breaks and the eggs start falling out, how many of them will crack? After Freedom Group goes public, they’ll most likely acquire significantly more eggs. That’s most likely at leat part of the agenda behind the IPO. Cerberus is an eating machine, after all. Not only that, but what about all of the non-Freedom Group companies that somehow avoid assimilation (or that Cerberus doesn’t want to assimilate) and now have to compete against them? What about the gun-buying public?
Whatever. Either way, Cerberus is probably going to keep gobbling up firearms and related companies in Pac-Man-like fashion until it runs out of companies to gobble or it gets sick and its jaws stop working–or somebody wires it shut.