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Will Wall Street be good for the Firearms Industry?

Ries

Diamond
Joined
Mar 15, 2004
Location
Edison Washington USA
This one took me by surprise- although they planned it that way.

It seems that Cerebrus, the private investment group that did such a good job with Chrysler- they have been buying up the american firearms manufacturing industry.

They own Remington, Marlin, Bushmaster, Parker, Dakota Arms, and more, all bought in the last 3 years.
They bought them because, in their opinion, they were "undermanaged".
Which, in Wall Street Speak, means they saw an opportunity to buy perfectly good companies, that made products in the USA, and made moderate profits, and loot them for cash, leaving behind smoking hulks.

They have now begun the process, launching an IPO that will net them $200 Million.

http://www.reuters.com/article/BIOTRX/idUSBNG40174020091021

We have seen this so many times in the last ten years. Big money guys buy up entire industries, "consolidate", promising all kinds of "synergistic savings". Usually they borrow the money to buy the companies, then leave the companies with huge debt, after taking them public and pocketing the profits.
Weakened by the debt, these companies do things like move production offshore, sell out to foreign competitors, or just go under.

Old line ma and pa companies plug along, employing people, making moderate (sub 10%) profits, and serving the market with quality products. Wall Street steps in, "manages" them into oblivion, but makes billions.


http://www.freedom-group.com/

check out where they say they have been in business for 193 years. Remington has- these rich guys just bought in 3 years ago.

I dont believe in conspiracy theories- but Cerebrus is certainly a group of well connected rich guys who have managed to make a lot of money through connections.
http://en.wikipedia.org/wiki/Cerberus_Capital_Management
Feeder funds to Madoff, Former Secretary of the Treasury under Bush, friends of the rich and famous.

It will be interesting to see what the long term consequences is for the firearms companies, now that they are no longer "undermanaged".
Firearms manufacturing in america has been a bright spot in our manufacturing sector for some time- a lot of small entrepeneurial firms, innovating, making some of the most desired brands world wide, here at home.
Of course, the imports have largely taken over the low end of the market, and we let the Belgians cherry pick one of our crown jewels, with FN owning Browning and Winchester and supplying the US army with virtually all its rifles and small machine guns-70% of US military small arms are made by this Belgian company- but still, it would seem that the very distributed, innovative nature of small arms manufacturing in the USA was what kept it alive- and that this kind of consolidation wont be good for it long term. Cost savings will undoubtedly be needed, once all that profit is removed from these companies, which generally means- wait for it- China!
 
Don't forget this one:

"Former U.S. Vice President Dan Quayle has been a prominent Cerberus spokesperson and runs one of its international units."

:nutter:
 
Isn't the CEO of Cerebus the guy that got Ho me Dep ot in financial trouble 5 or 6 years ago?

I suspect you are referring to Robert Nardelli, the former CEO of both Chrysler and Home Depot who was a protégé of Neutron Jack Welch, the CEO of GE (A.K.A. the spawn of Satan).
 
Cerberus was named after the dog that guards the gates of Hades. Sort of apt -- it's hard to say if Cerberus has been on balance good or bad for the companies they've acquired.

In their heyday they were making a ton of money -- an extremely competent, powerful, well connected, and very private company. One would think they'd have to be scrambling these days with not only the Chrysler debacle but several other major holdings that have tanked.

I've worked with a couple of companies that had been acquired by Cerberus. On the positive side, they often brought a much-needed discipline to the business. On the negative side, as Ries suggests, they weren't adverse to gutting a business and polishing up what was left for resale.

One would think, these days, that it will be a little harder to take a company private and then make a killing on taking it public again -- a bit more skepticism from investors. HOWEVER, I suspect one of the attractions of the firearms business is that there's likely to be a lot of gun owners and others with emotional attachments to the industry who will line up to buy the stock of such once-legendary companies.

I don't know the firearms industry, but suspect many of the companies (especially if family owned for several generations) have had pretty sleepy management. Cerberus will also have the political connections and power to win whatever government contracts are out there and also seek favorable legislation. Ries is right, it will be interesting to see how this plays out.
 
Usually they borrow the money to buy the companies, then leave the companies with huge debt, after taking them public and pocketing the profits.

Another common practice with these sort of deals is for them to gouge huge consultancy fees (usually a percentage of the loan value) for sourcing the debt.
 
GHW Bush also became a partner of Cerberus, as well as Dan Quayle.

They have not been good for the US of A, but you are allowed to do anything you want unless it is illegal.I do believe they lost money on the Chrysler deal.

Very few firearms mfgs are run by descendants. Ruger might be. Thompson might be. Other than them, I do not think any others. You are taking the lease from the present leaseholder when you buy any of the other companies. He makes a profit and is happy. You get what you want and are happy.

Weatherby, I can't say. Roy has been dead long enough that probably none of his offspring, if he had any, wanted to run a FACTORY.

Cheers,

George
 
Au,

Thanks.

I wanted one of them so damned bad when I was younger. My best is an Interarms 7 mm Mag, and a Browning BLR that was rebarreled to 7 mm-08 by P.O.Ackley. Beautiful lil sumbitch. And a tack driver. Interarms, over 45 years old. Kicks like a mule.

Cheers,

George
 
Ah, interesting times....

I've worked in >£B/year proffit conglomerates, and for little family companies, it is difficlt to know whether cerebus'll sell the desks chairs and carpets out of the office, then sell the companies to someone who expects to asset strip after that, or whether they're going to have to run the companies to make proffit the old fashioned way.

The suggestion about political lobbying is two edged as well: look at Ruger lobbying for bans on large capacity mags to stop the AK competition for his mini 30, or Tomkins owned S&W cozying up to the Clinton administration on fitting key locks.

Many of the designs these firms sell are years out of copyright and patent, so anyone who wants to reverse engineer a couple of examples can set up and produce in competition, with whatever tweeks the market likes.

Cerebus may well find out they've bought names, worn out plants and dodgy labour relations...
 
The undervalued acquisition. The idea is you get a business that is trading below its proper value due to whatever, polish it up and sell it all off for a fast profit. It is a sad fact.

The firearms business seems to me to be a well known area. People know what the product is and how to turn out a good product. There are plenty of people taht can do it. The technology is mature. There is little in the way of improvements to be made. So yes you will see rifles coming out of China that are cheap and half decent. The thing that will give others a chance to compete is that doing a really good rifle comes down to really painful attention to tiny detail. It will keep smaller guys in the game.

Anyway the finance thing is what markets do. There is nothing you can do about it much except make sure you are sharply managed and promote yourself to the market to keep the stock price close enough to fully priced.

Stephen
 
Colorado,

He did live in Trinidad for a while, didn't he? 20 years dead, now. First read his work over 50 years ago. Him and Elmer Keith. And Jack O'Connor. And lots more.
Then he went to Utah.

OT, did you know he, I think it was, once rechambered an Arisaka, thought it was 7,7, to '06, fired it, and discovered it was a 6,5? Action held. Bullet was swaged to needle length.

Turned a rifle barrel to 1/16 wall and fired it? It held. Greatest pressure in the chamber area, reduces as the bullet travels, and gradual pressure increase so could hold the 30 thou or so pressure in the gradual buildup.

Sorry to say that in the present market, I can't afford what is out there. I would like a 1911. Once they were cheap. Today they go 500 up to the sky. Wilson Combat and other boutiques want 1500 and more. First pistol I owned, again 50 years ago, and swapped a single shot 22 for it. Today I am shooting BP in replicas, BUT, I am enjoying the hell out of that.Walker is 4 pound 9 ounces, holds 60 grs. of BP. Till the .357 Mag, the most powerful pistol made. That weighs pret near as much as that Euro 7 mm.

Cheers,

George
 
I'd be happy owning one of these
http://homepage.ntlworld.com/boris_t_cat/Social/rifle1.jpg

50 cal semi auto sniper rifle

Sadly the manufacturer does'nt seem keen to sell one to me, partly because I dont have the cash, but mostly because it violates most of the UK's firearms laws :( *

Boris

* and quite a few US firearms laws too :D


Boris, come on over and get you one/some of these.....public more than welcome.

http://www.barrettrifles.com/home/

Or build your own....still legal
 
Sorry to say that in the present market, I can't afford what is out there. I would like a 1911. Once they were cheap. Today they go 500 up to the sky. Wilson Combat and other boutiques want 1500 and more.

George

Talked with a neighbor yesterday who used to accurize 1911's for Army shooting teams. He says its' not costly unless you want all the detailed fancy extras they include with the high price guns. I had a 70 series 1911 that had a barrel bushing installed from an 80 series (I think) with spring fingers to hold the barrel & trigger job. It shot very well, cheap tricks.

Back on topic.

Remington has to be a cash cow for Cerebrus. I just hope they don't milk it too much.
 
Any chance of this being "back door" gun control. I've gotten to where I don't trust any big money - Government or Wall Street.

Charlie
 
Quick thoughts on the market. The share market is a way to connect investors and business. Properly functioning it invests money in capable businesses that are likely to make profits and provide a return on investment. For business it is an essential service as by giving equity in the company the company gets access to money it needs for expansion.

That's the ideal. The trouble is that there will always be market failures. We witnessed a major failure last year with the investment banks going under and derivatives markets toppling. I am not one of those who argues for a totally unregulated market even if I generally prefer less rather than more regulation. Markets need controls to keep them going completely out of control. There will always be various Spivs, bottom feeders, con men, amongst others who will try and manipulate the thing to their own ends. So there is a constant battle to try and keep things on an even keel.

Actually the Spivs did really well out of stuff like the Junk bonds crisis (remember that?) and of course the derivatives crisis also. The reason was the market was awash with cash and various speculators took out loans and were looking to turn a fast dollar.

Will Wall St be good for the firearms industry? Perhaps, it is a matter of getting the serious investors onto your register rather than the fly by nighters.

Stephen
 
CB,

I know that part. Problem is getting a decent piece to start with. I actually was a gunsmith in my youth, up till about 27-28, then got fired by the shop I worked for because I wouldn't grind bolt stop notches on a snubbie for a local cop who didn't like the way his acted.

I said it was taking his life in my/our hands, he said the cop was willing to pay and said go ahead. I said no and he said go.Taking the shake out of the slide/frame mating, polish feed ramp, better fitting bushing, ball type, skeleton hammer, not critical but THEY like that, overtravel on the trigger, I'm right handed so don't need ambi.
 








 
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