Private Equity

Cerberus Offers Investors a Way Out of a Controversial Gun Business


Intriguing news at the intersection of private-equity investing and gun manufacturing: Cerberus Capital Management reportedly is arranging an escape option for fund investors eager to get out a controversial portfolio company—the gunmaker Freedom Group.

Bloomberg Businessweek has followed Cerberus’s adventures in the firearm trade for several years. Beginning in 2006, Cerberus bought gun and ammo manufacturers and rolled them into Freedom Group, now the largest U.S. company in the industry. Cerberus founder and principal member Stephen Feinberg, who hunts for a hobby, planned to take Freedom public but never pulled the trigger on an IPO.

In the wake of the Dec. 14, 2012, Newtown (Conn.) elementary school massacre, Cerberus announced that investor pressure prompted it to look for a buyer for Freedom Group. Bushmaster Firearms, one of the companies operating under the Freedom Group umbrella, made the semiautomatic large-capacity rifle the Newtown shooter used to murder 20 children and six adults before killing himself.

Now, a year after Newtown and without a buyer it deems suitable, Cerberus has arranged for new financing from an undisclosed institution. The arrangement will allow fund investors to back out of equity interests in Freedom Group, Reuters reported. “It should become apparent in the next two weeks whether Cerberus decides to use this mechanism instead of pursuing an outright sale of Freedom Group,” Reuters said, citing “people familiar with the matter.”

Three observations as this story unfolds:
1. Gun sales continue to be strong, even as social disapproval in some circles causes Cerberus to accommodate investors seeking to back away from Freedom Group.
2. Knowledgeable people in the gun industry continue to speculate that eventually Cerberus will unwind its rollup to sell off some of the well-known components, including Bushmaster and Remington.
3. There could be more flux ahead on another firearm-industry front, as the struggle for control of privately held Glock might portend that iconic Austrian gun manufacturer becoming available for sale, as well.

Barrett_190
Barrett is an assistant managing editor and senior writer at Bloomberg Businessweek. His new book, Law of the Jungle, which tells the story of the Chevron oil pollution case in Ecuador, will be published by Crown in September 2014.

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