Cerberus Capital May Have Found Investor For Its Gun Business

A report in today’s Wall Street Journal states that Cerberus Capital may have found an investor for its firearms business. The unidentified investor and/or lender would hold a minority stake in the business large enough that Cerberus could let some of its investors sell out their stakes.

But Cerberus hasn’t reached an agreement with a buyer. The sales process has been complicated by several factors, including subsequent high-profile shootings and financing issues for some possible bidders, the person familiar with the matter said. Some offers were lower than what Cerberus thought was fair, the person said. In addition, some private-equity firms looked at the company but dropped out in early September, the person said.

Cerberus had originally sought around $1 billion for the business, a person familiar with the matter said. The new planned deal, including about $200 million in a credit facility, values the business at around $1.2 billion.

Freedom early on attracted interest from gun makers such as Smith & Wesson Holding Corp. and Sturm, Ruger & Co., people familiar with the matter have said.

Meanwhile, business at Freedom, which was already profitable, has improved. Freedom reported that revenue for the quarter through September rose 46% from a year earlier to $347.1 million as its earnings nearly doubled to $31.2 million.

In the post-Newtown shootings hysteria, Cerberus announced that it would sell its Freedom Group firearms business which includes brands such as Remington and Bushmaster. This was, in part, a reaction to the shooter using a Bushmaster rifle which he took from his mother after he murdered her.

The California State Teachers Retirement System – the largest teachers’ pension fund in the country – is one of the investors who is trying to get out of the investment fund. My guess is that there are other public pension funds who are also trying to sell their stakes in Cerberus because they don’t want to deal with pressure from their holier than thou members.