A New Capital Infusion Into The Firearms Industry

Yesterday, Jim Shepherd at The Outdoor Wire mentioned that Savage Arms had just had an infusion of equity capital from Norwest Equity Partners on Tuesday of this week.

From the Norwest Equity Partners news release:

Erik Torgerson, a NEP partner and senior advisor, stated, “Savage is an industry leading, best-in-class company. Our investment will help advance global market expansion and the continued development of an innovative, diversified products platform. The Company operates within a fragmented industry, and there is significant opportunity for consolidation through add-on acquisitions in both existing and adjacent market categories. Under the leadership of Ron Coburn and his accomplished management team, Savage is well-positioned to continue to expand and exceed its growth objectives.” Torgerson and Tim DeVries, a NEP managing general partner, have joined the Savage board of directors.

Coburn stated, “This new investment partnership with NEP marks an exciting time for Savage. On behalf of our management team and employees, we look forward to working with the NEP team, exploring new business opportunities and advancing our business potential together.”

I agree with Jim’s interpretation of this where he say it means “we have money and there are companies out there that would be good fits, so we may go shopping.” He also notes that other deals and consolidations in the firearms industry may be coming over the next few weeks.

A little history about Norwest Equity Partners and their past investments will show just how significant this investment is for the firearms industry. NEP is an offshoot from Minneapolis-based Northwest Bancorporation that was started in 1961. They originally specialized in Minnesota companies but have since broadened their geographic reach. Their specialty is working with companies to bring them to that next level. Among the companies that they have made equity investments in over the years are Cray Research (supercomputers), Gymboree (kid’s clothing ), Dairy Queen (fast food), and PeopleSoft (software). These are all now big-name companies.

In 1998, Norwest Bancorporation merged with Wells Fargo Bank. While the name going forward was Wells Fargo, in reality Norwest bought Wells Fargo and then took their name. This is the same thing that NationsBank (formerly North Carolina National Bank) did when they merged with Bank of America. The combined Wells Fargo which has now added Wachovia into the mix is the fourth largest bank in the United States according to the Federal Reserve.

With this sort of money and expertise behind Savage Sports Corporation, I think we are now seeing a well-funded competitor to Cerberus’s Freedom Group. Both Savage and Freedom Group are strong on rifles but weak on handguns. I anticipate seeing one or more of the handgun manufacturers being bought by one or the other of these companies. Indeed, one of the rumors I remember reading coming out of the 2012 SHOT Show had Freedom Group buying Para-USA. I don’t know the truth of it but it makes sense given that both are headquartered in North Carolina and are about a two hour drive apart in location.

This will be interesting to watch over the next few months.

Weak Industry?

Josh Sugarman, Executive Director of the Violence Policy Center, had an article in the Huffington Post on Monday with his analysis of the retracted Freedom Group IPO. Based on this one company, he said the gun industry was in decline due to a “a cratering gun market”.

I guess the folks at Sturm, Ruger didn’t get the message that their market was “cratering”. They announced on Monday the results of the share repurchase program.

Sturm, Ruger & Company, Inc. (NYSE-RGR), today announced that during the first quarter of 2011 the Company repurchased 133,400 shares of its common stock for $2.0 million in the open market. The average price per share repurchased was $14.94. These repurchases were funded with cash on hand. At the end of the first quarter of 2011, $8.0 million remains authorized and available for share repurchases and 18.9 million shares remain outstanding.

Rarely do weak companies repurchase their own stock. The primary reason is that they don’t have the cash on hand for the transaction. You will note that Ruger used cash on hand to fund these repurchases.

Stock repurchases generally increase shareholder value and are a positive thing. Ruger paid an average price of $14.94 per share. Yesterday’s closing price for Ruger (RGR) stock was $23.00 per share. That is a 53.9% increase.

The stock market obviously doesn’t perceive that Ruger is in a “cratering gun market”. According to website Seeking Alpha, in mid-March when the S&P 500 dropped 4.3%, Ruger was one of the companies that bucked the trend.

The bottom line is that certain segments of the firearms market are stronger than others. Handguns are the hot segment of the firearms market. This is especially true of smaller, more concealable handguns. Freedom Group – other than Remington’s 1911R1 – is not in the handgun business. Ruger is in the handgun market and has moved strongly into the smaller pistols and revolvers. The results of that move are evident in its stock price.

It Depends On Whose Ox Is Being Gored

The Wall Street Journal reported that the Freedom Group’s expansion of their Remingon Arms facility in Ilion, NY plant will add 40-50 new jobs there. They are moving their Bushmaster operations from Windham, ME to Ilion in a consolidation of operations. The means that Bushmaster AR-15’s – those evil black rifles – will now be made in New York State.

The senior Senator from New York, Chuck Schumer, has a well-deserved reputation for being an enemy of gun owners and gun rights. That is why I find his remarks on the expansion of the Remington plant so ironic. He says he is all for guns if it means jobs for his constituents and if he can push the military to buy more “made-in-New York” firearms.



Bushmaster Firearms Set To Move Production From Maine Facility To Ilion, Bringing Scores of New Jobs And Economic Opportunity To Central NY

Schumer Is A Long-Time Supporter Of Remington Plant, Helped Bring New Business By Securing Vital Grants And a Level Playing Field to Compete For Government Contracts

Schumer: These Jobs Are Great News For Mohawk Valley Economy

Today, U.S. Senator Charles E. Schumer joined Remington officials and plant employees to announce that Bushmaster Firearms is relocating a manufacturing facility from Windham, Maine to Ilion, NY, bringing over forty new jobs to Central New York in the process. Schumer has been a long-time supporter of manufacturing at the Remington plant, urging top Army officials to open up competition for the Army’s small arms contracts to other U.S. manufacturers and domestic producers across the country like the Ilion, New York-based Remington. Today, Schumer applauded Remington’s decision to add new jobs to the productive and capable work force already making the factory an economic powerhouse in the Mohawk Valley.

“What a great day for Remington’s Ilion plant, the Mohawk Valley, and Central New York’s economy,” said Senator Schumer. “Thanks to Remington’s continued confidence in this capable workforce, we’re going to see even more good-paying jobs at the plant, creating positive ripple effects throughout the region. The addition of these jobs strengthens the ability of the Remington plant in Ilion to compete for the many Department of Defense small arms contracts available this year by adding to the skilled workforce and further enhancing the manufacturing capability for M-4 and M-16 style firearms. As I have always done, I will work tirelessly for a fair and open contracting process with the military so the Ilion plant and its workers can compete on a level playing field, and continue to produce the high quality equipment our men and women in uniform deserve and expect.”

Senator Schumer has long been a strong supporter of the Remington facility. He led the effort in Congress to repeal the law that limited competition for small arms contracts, so that Remington can now compete for small arms contracts with the Department of Defense. Schumer also successfully pushed the Army to open up their application process and solicit competing contracts in order to modify Army’s M-4 carbine. As a result of this effort, Remington is now competing with other companies to win the contract.

After the Army identified a requirement to upgrade its M-24 sniper rifle used in Afghanistan, Sen. Schumer secured funding for the upgrade from Congress. Schumer’s success in securing funding for this project ultimately allowed Remington to compete for and win a contract to upgrade the Army’s 3600 M24 sniper rifles (now called the XM2010). The Army recently ordered an initial quantity of 250 XM2010s, which Remington is currently manufacturing and the Army is shipping to our sniper teams in Afghanistan. Schumer’s push for an open contracting process that allows Remington to compete with other manufacturers has resulted in economic growth and new jobs coming to the Ilion facility.

Given that the Freedom Group’s headquarters is in Madison, North Carolina – just north of Greensboro – it is a shame that they didn’t bring those jobs South to North Carolina.

Bushmaster President to Retire

From Bushmaster:

Bushmaster Firearms® Announces the Retirement of the Company President

Windham, ME –After over a 40 year career in business and manufacturing, John A. DeSantis, President of Bushmaster Firearms has decided to retire and to pursue other challenges and another exciting phase of his life. John has been a tireless driving force behind the success of Bushmaster. He surrounded himself with a great team of professionals and together they have grown Bushmaster into the largest commercial AR platform rifle manufacturer in the world. John commented that “Bushmaster will always have a warm place in my heart and I have enjoyed my experience with the Freedom Group of Companies. I look forward to spending more time with my family.”

“On a personal note, John is truly a world-class gentlemen and I am proud to call him a personal friend. John has been an invaluable asset to our company and me personally. His wisdom and his high regard for our product, combined with his deep respect for the rich traditions of our industry, have been a great source of counsel and advice to me.” said Ted Torbeck, CEO, Freedom Group, Inc.

John’s retirement will be official on July 31, 2010, but he has graciously agreed to stay on and oversee the day to day business of Bushmaster until his replacement can be found. He also will continue on a consulting arrangement to help grow our modern sporting rifle business.

About Bushmaster Firearms International, LLC

Bushmaster Firearms International, LLC (BFI) is the leading supplier of AR15/M16 type rifles in the United States for Law Enforcement, security and private consumer use. Headquartered in Windham, Maine, with additional facilities in Dallas, Georgia and Lake Havasu, Arizona, BFI supplies aluminum and advanced carbon fiber-based rifle platforms in calibers ranging from 5.56mm/223 to 50BMG. These and associated accessories manufactured by BFI meet the tactical rifle needs of US customers as well as Military, Law Enforcement and Security clients from over 50 countries worldwide. Visit our web site at www.bushmaster.com.

I wonder if this has anything to do with the plans for the Freedom Group to go public.