Cerberus Sets Its Sights on IPO for a Gun Maker

[Bob J]

http://online.wsj.com/article/SB125599020732295081.html#mod=todays_us_money_and_investing

After bad bets on cars and home loans, Cerberus Capital Management is turning to guns and bullets.

The private-equity firm is in advanced preparations for an initial public offering of Freedom Group Inc., said people familiar with the situation, hoping to sell shares in a little-known company it has built into a dominant player in the red-hot rifle-and-ammunition business.

Over a three-year span, Cerberus -- while under the spotlight for ill-fated acquisitions of auto maker Chrysler LLC and lender GMAC LLC -- has acquired at least seven U.S. gun-and-ammunition makers.

Those companies have been consolidated into a Madison, N.C.-based company called Freedom Group Inc. It is on track to generate about $900 million in sales this year, according to a person familiar with the results. That makes Freedom one of the world's largest manufacturers of firearms and ammunition.

A spokesman for Cerberus declined to comment.

While U.S. retail sales remain sluggish, rifles and ammunition are flying off store shelves. A number of factors are driving increased demand, including the political concerns of gun owners. Since the election of President Barack Obama, demand for firearms has spiked amid concerns the administration will increase restrictions on firearms ownership and levy additional taxes.

Also, the U.S. military, fighting wars in Iraq and Afghanistan, has increased its weapons purchases, and government contracts present a large opportunity for Freedom Group.

Freedom Group has been a major beneficiary of the boom. Background checks conducted by the Federal Bureau of Investigation, a key measure of firearms sales, increased by 20% for the first nine months of 2009 from the same period the year before, according to the National Shooting Sports Foundation.

Cerberus will try to take Freedom Group public amid a flurry of private-equity-backed companies hoping to exploit an improved IPO market. New York-based Cerberus itself brought Talecris Biotherapeutics Holdings Corp., a producer of blood-plasma medicines, to market earlier this month, a deal that has generated a net gain of $1.8 billion.

But over the past two weeks, several buyout-backed IPOs have sputtered, raising concerns over whether demand will support the flood of supply.

A successful offering of Freedom Group would arrive at a welcome time for Cerberus. The firm, which manages about $24 billion in assets, has taken losses on its investments in Chrysler and GMAC. Those losses in part caused investors to withdraw $4.77 billion from the firm's hedge funds.

The origins of Freedom Group date to April 2006, with Cerberus's acquisition of Bushmaster Firearms. A year later, it paid $118 million for Remington Arms Co., the country's largest and oldest maker of rifles. Since then, Cerberus and its affiliates have acquired Marlin Firearms, a maker of lever-action rifles; Cobb Manufacturing; Dakota Arms LLC and DPMS Panther Arms, a large manufacturer of AR-15 rifles. Its acquisition binge shows no signs of slowing. Earlier this month, Remington purchased Advanced Armament Corp., a Norcross, Ga., maker of pistol silencers.

Cerberus's thesis was to consolidate a fragmented industry it saw as undermanaged. Earlier this year it named Ted Torbeck, a 20-year veteran of General Electric Co., as Freedom's chief executive. Befitting the low profile maintained by Cerberus and its founder, Stephen Feinberg, the company lacks a Web site. While each of its brands has a Web site, none mentions Freedom Group. Freedom is expected to enhance its corporate identity in the coming months, according to people familiar with the company.

Helping oversee the investment for Cerberus is George Kollitides, who like his boss Mr. Feinberg is an avid shooter and hunter. Mr. Kollitides, who has run unsuccessfully for a National Rifle Association board seat, is a member of the upscale hunting club Mashomack Preserve Club in Pine Plains, N.Y. Mr. Feinberg, an ardent deer hunter, favors a Remington Model 700 and owns the rifle in a variety of calibers.

 

[rep308]

I have a subscription so I got the full version, non subscribers track down the print edition. I was surprised to see the large number of companies under this umbrella and I guess it make sense why now Remington has an AR style hunting rifle

 

[Pilgrim]

So now the .gov can somehow shut down one company and half or more of the industry goes.

Nice.

 

[drgrant]

So now the .gov can somehow shut down one company and half or more of the industry goes.

Nice.

I'd like to see them try. IMHO it'd be like pouring a lot of gas on the fire if they did.... It'd be another catalyst for getting people "motivated." (and that's putting it lightly... )

-Mike

 

[terraformer]

Wonderful. Cerebus is a follower and not a leader. Anything these guys are chasing is going down.

 

[Doc Holiday]

Wonderful. Cerebus is a follower and not a leader. Anything these guys are chasing is going down.

I wouldn't count on that, yes it's aquisitions of GMAC and Chrysler was right companies, bad timing. They also aquired these companies more than 2 years prior to the meltdown. Cerebus is a holding company, they dabble in everything, they come in and invest and stream line, then once making the companies more profitable, they sell them. This is their trade mark. They have been very sucessful at it, for a long time. Yes, you did get to know them when the meltdown occured, but Chrysler and GMAC were not your typical buisnesses, and at the time of purchase, they were trend forcast to improve. Then the bottom fell out, which were not directly caused by these two companies.

They have great managment skills, and had the meltdown not occured, both holdings I firmly beleive would have continued to improve.

So my opinion is to watch them, with knowing how this particular company works, I am very optimistic.

The other added bonus, two BOD are shooting fanatics, that in and of it self, is great news. I highly doubt that a major holding corporation is going to invest in companies just to get better ammo prices.

 

[terraformer]

Well, what I hope is they get some political clout and are able to keep the wolves at bay.