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Earlier this December we heard the news that Cerberus Capital Management (http://www.cerberuscapital.com/)--one of the largest private equity investment firms in the U.S.; based in New York City, and run by 47-year-old Steve Feinberg--was acquiring DPMS, Inc. (http://www.dpmsinc.com/). Cerberus was founded in 1991, but really began buying other business just a few years ago. Its biggest news splash was the acquisition of Daimler-Chrysler.

Cerberus bought Bushmaster Firearms (http://www.bushmaster.com/) in April 2006, then Bushmaster subsequently brought Cobb Manufacturing--a Georgia-based maker of bigger-bore tactical rifles--into the Cerberus fold by acquiring Cobb last August. Bushmaster, Cobb, and DPMS make up a pretty good chunk of the EBR production in the U.S.

But Cerberus obviously has more planned for the firearms industry, and it's potentially less focused on the LEO or military markets. Last April, Cerberus bought Remington Arms (http://www.remington.com/), whose byline is "America's Oldest Gunmaker." And the news just came out yesterday that Remington is absorbing Marlin Firearms (http://www.marlinfirearms.com/)--another of the oldest firearms manufacturers in the U.S.--into the huge Cerberus machine. This acquisition also adds H&R 1871 (Harrington & Richardson and New England Firearms, Inc.), the largest manufacturer of single shot rifles and shotguns in the world, and L.C. Smith shotguns to the Remington (Cerberus) line.

So in a scant year, you look at the firearm manufacturing landscape in the U.S. and you can see "Cerberus" stamped in almost every channel except handguns. They have no handgun manufacturing operations yet.

I don't pretend to understand what it all might mean, or have enough smarts to guess at any ramifications or long-term effects. But simply on principle, I'm not thrilled by the possibility of mega-corporation homogeneity becoming the standard in the firearms industry. In today's political and economic climate, "unify and conquor" can apply as "divide and conquor" used to. A huge corporation that controls a large market segment has only a few officers and board members to convince...or apply pressure to, as the case may be. Laissez-faire could certainly change in a politically-charged arena like firearms if we end up with just two or three entities like Cerberus controlling 75% of the U.S. firearms production.

But I simply may be cynical. Just wonderin y'alls' thoughts.

P.S. Colt, Smith & Wesson, Springfield... All you guys hang in there, okay?

I share your concerns, plus we also face the same pricing risks with any monopoly or near-monopoly. However, unlike trying to market a new car, it would be easier for a new gun maker to break into the firearms industry, should the need arise.

Chas.

Interesting developments. Thanks for posting.

I have the same concerns, plus the fact that these large conglomerates have a nasty habit of going bankrupt and taking down all the businesses that they own.

On the bright side, we already have enough weapons for our needs, and I suppose most shooters do.

- Jim

Couple of thoughts:

1) A capitalist buys companies to make money. At first blush, it looks like Cerberus thinks they can make money making and selling rifles. Maybe they want to own the rifle companies just to shut them down, but that seems tin-foil-hattish.

2) Winchester bought the patent rights to about every rifle John Moses Browning designed, including a couple neat pump-action rifles, and buried the designs to keep down competition with their JMB-designed lever guns.

These patents expired long ago, and the designs are described pretty well in a biography of JMB I read a couple years ago. I was particularly taken with a pump-action rifle that had a removable box magazine instead of a tubular magazine. I want one in .44 Mag and another in 45-70.

Under the guise of "Cowboy Action Rifles from an Alternate Time-line" - or just "Brownings Undiscovered Rifles" - a company could launch a pretty neat line of lever / pump action, removable box magazine rifles that would give the people who want to ban "semi-automatic" rifles fits.

If anyone has some venture capital to invest, I'll see what I can dig up about the actual designs. I know some people who know a quite a bit about CNC machining, and I know a thing or two about steel and heat treatment. We would need a business-marketing type person, and a good lawyer, but it might be fun to be the new little cat competing with the big dog.

Sounds like an opportunity, to me.

Regards,
Andrew

Nice post, Andrew!

That is an eye opener,could be lots of possiblities I woul hate to see the price of firearmsgo up due to lack of cmpetition,or worse.but as long as there are company's that can machine AR-15 receivers and barrels,I can assemble rifles,as long as the other parts don't dry up

seamusTX wrote:Interesting developments. Thanks for posting.

I have the same concerns, plus the fact that these large conglomerates have a nasty habit of going bankrupt and taking down all the businesses that they own.

On the bright side, we already have enough weapons for our needs, and I suppose most shooters do.

- Jim

Some of this concern is for future generations of gun owners.

Venus Pax wrote:Some of this concern is for future generations of gun owners.

That is a legitimate concern, but if we take good care of our weapons, they will outlive us. We also need to remember that companies like CZ, Beretta, SIG, and whatever name Kalashnikov goes by these days are not much affected by the U.S. economy; and they are big companies.

- JIm

BobCat wrote:1) A capitalist buys companies to make money. At first blush, it looks like Cerberus thinks they can make money making and selling rifles. Maybe they want to own the rifle companies just to shut them down, but that seems tin-foil-hattish.

I like that: "tin-foil-hattish." May I borrow it from time to time?

For my part, I trust Cerberus's capitalistic interests; I harbor absolutely no conspiracy theories about any possible anti-gun motivations.

Actually, that Cerberus is acquiring Marlin (deal expected to close in about 30 days) under the Remington umbrella makes me more optimistic, and (at least for the time being) Cerberus is keeping Tommy Millner in the Remington CEO position, and the press releases say that Bob Behn will remain as president of Marlin...so no wholesale name changes or house cleaning. I admit I was less concerned overall about the Bushmaster and DPMS acquisitions, but Remington and Marlin sparked a non-quantifiable matter of history and tradition: John Marlin worked for Colt during the Civil War, and started his own company in 1870; Remington opened in 1816, and is the only U.S. manufacturer of both small-arms and ammunition. There's a proud legacy there.

In Cerberus's backyard, though--speaking of capitalism--all the financial portfolios of Remington, Marlin, Bushmaster, and DPMS combined represent little more than a rounding error for one fiscal quarter for their new holding company. Cerberus is privately held, so getting a whole picture of their operations is sketchy to us lowly gun aficionados, but even what is known of their scope is difficult to get your arms around.

Technically, Cerberus (named after the three-headed dog that guards the gates of Hades) is a hedge fund, of a type often referred to unflatteringly as a "vulture fund." There is nothing to say that they don't have long-term plans for their acquisitions, but that's not what the pattern looks like, and there's no telling whether or not old Eliphalet Remington II is doing some spinning right about now. And it not just Cerberus; similar hedge funds have grown explosively over the past decade and a half; it's just that Cerberus is the first to dip its three-headed toe into the personal firearms market.

Here's a quick attempt at trying to stretch my arms around Cerberus. It was started by its enigmatic boss, Stephen Feinberg, in 1992 with seed money of about $10 million. Fast-forward to 2007: working for Feinberg as Cerberus's chairman is John Snow, 73rd Secretary of the Treasury; chairman of global investments is former VP Dan Quayle; and the combined Cerberus companies have somewhere around 150,000 employees and a payroll larger than Exxon-Mobil's. I've seen current estimates of total assets ranging from $24 billion to over $30 billion...at least triple what it had as recently as 2003. The combined annual sales would be around double that. Their biggest direct competitors are KKR (Kohlberg Kravis Roberts) and the Blackstone Group.

Those holdings are literally all over the place: technology, banking, real estate, retail, automobile manufacturing, textiles, military supply and services, aviation, food services and grocery stores, travel and entertainment, car rental, building materials, clothing...you name it. Cerberus owns majority interest in (among many others), Chrysler, GMAC Finance, Air Canada, the Japanese bank Aozora, ACS (Affiliated Computers Services in Dallas, a Fortune 500), Meadwestvaco's paper business (a $2.8 billion acquisition that included almost 1 million acres of land), the National and Alamo car-rental chains, etc.

Some critcs wonder whether a firm that specializes in snatching up under-capitalized companies--companies that do everything from manage hotels, run banks, provide IT outsourcing services, and manufacture car seats, shotguns, picture frames, and beer bottles--can bring to bear the right management resources to steer those companies' futures. In many of the cases--if not most--the companies became buy-out targets because their bottom lines were in trouble. Leaving the same management in place is not always a wise course of action.

On Christmas Eve, Cerberus announced it would pay United Rental an acquisition kill-fee of $100 million (Cerberus offered to take United to the dance, but changed its mind before Thanksgiving, just before it bought the corsage; United lobbied in court to force Cerberus to go through with the deal, but the court agreed a $100 million payment was fair compensation for backing out on that date to the prom).

To put this into perspective, the Remington purchase (probably the largest of Cerberus's firearm company acquisitions, but the other amounts aren't known) was valued at $118 million, plus assumption of outstanding debt. Remington's 2006 numbers showed $29.6 million in operating income, but $28 million in interest expenses.

Jim mentioned that CZ, Beretta, and Sig Sauer are big companies. To monster hedge funds the size of Cerberus, though, I'd posit that NO maker of personal firearms is a big company. From their perspective, I could imagine that the global playing field looks like a lot of relatively small companies producing an amazingly wide array of competing products. It may be one of the few industries left essentially untouched by the last few decades of gobble-mania business mergers and acquisitions. For everything from banks to television sets, consumers have a lot of choices today, but those choices are offered by far fewer--and via mergers, far larger--companies than existed in, say, 1980. I'll even bet the last time you rented a car from Alamo, you thought it was Alamo, not Cerberus; or the last time you stayed at a Wyndham Hotel, you thought it was Wyndham, not Blackstone.

Ain't necessarily a bad thing. In fact, Remington's financial picture was not rosy, and they may have been in for a downhill struggle without Cerberus. I just don't have as much of an emotional stake--a personal feeling of history and tradition--in the ownership of Alamo Car Rental as I do Remington and Marlin.

Despite that sentiment of legacy, my earlier comment about corporate homogeneity had to do purely with the capitalistic interests of the holding companies. If we were to put on our Futurist Hats and jump forward to 2025, will it have been in the economic interest of Cerberus (who now let's say, just for grins and chuckles, owns Bushmaster, DPMS, Cobb, Olympic Arms, Remington, Marlin, H&R, Benelli, Browning, and Smith & Wesson) to spend money and resources designing, developing, manufacturing, and selling directly-competing products under the different brands, or will it have been more fiscally responsible to, say, have S&W discontinue rifle and shotgun production work and concentrate solely on handguns? And have Bushmaster pick up all the tactical rifle design and production? And have Browning and Benelli co-design and co-produce the same line of shotguns, one branded for North America, the other for international sales? I don't find that a far-flung scenario.

The good news is that, as BobCat pointed out, American entrepreneurship will never die. I'm not concerned about being able to buy a new, custom 1911 in 2025 (yep; I do still think the 1911 will be around )...or a BobCat Arms JMB pump-action in .45-70.

But I AM able to imagine that .45-70 cartridges would be almost impossible to come by because the worldwide firearm conglomerates decided it wasn't cost-effective to continue manufacturing that cartridge, or rifles that shoot it; or to imagine that (stealing a line from Henry Ford), I could buy, new, any modestly-priced, production handgun I wanted, just so long as it had a black polymer frame, came from one of three manufacturers, and came in one of three calibers.

Oh, and since the Big Three Firearm Makers could retool their factories a lot less expensively, relatively speaking, than all the various, small plants back in 2009 when the bill first came up under the Clinton administration, there was no real push-back from the manufacturers to the Obama Microstamping Bill of 2014, so every firearm's "DNA" is being burned holographically onto the steel casings (no more brass: too expensive) of every round fired...which also, ultimately, made reloading far too expensive for individuals: only the large plants could accurately and legally erase the laser-etched holograph on a previously-fired casing. The Big Three had seen that as a huge upside to the Microstamping Bill--one reason there was no push-back--because it effectively removed the aftermarket for handloading and put them into complete financial control of all small-arms ammunition...

skiprr wrote:Oh, and since the Big Three Firearm Makers could retool their factories a lot less expensively, relatively speaking, than all the various, small plants back in 2009 when the bill first came up under the Clinton administration, there was no real push-back from the manufacturers to the Obama Microstamping Bill of 2014,...

I could see it going the other way. A large firearms and ammunition manufacturer backed by untold billions in private hands could be a more powerful lobbying influence than many small manufacturers, some of whom are apolitical and don't seem to look out for their own interests very well.

certainly would be nice to have someone with deep pockets on "our" side!

Skiprr wrote:The good news is that, as BobCat pointed out, American entrepreneurship will never die. I'm not concerned about being able to buy a new, custom 1911 in 2025 (yep; I do still think the 1911 will be around )...or a BobCat Arms JMB pump-action in .45-70.

But I AM able to imagine that .45-70 cartridges would be almost impossible to come by because the worldwide firearm conglomerates decided it wasn't cost-effective to continue manufacturing that cartridge, or rifles that shoot it; or to imagine that (stealing a line from Henry Ford), I could buy, new, any modestly-priced, production handgun I wanted, just so long as it had a black polymer frame, came from one of three manufacturers, and came in one of three calibers.

On the contrary, the departure of large players from certain markets is a boon to niche manufacturers. So long as the government stays out of it and lets the free market prevail, that is, which leads us to your next point:

Oh, and since the Big Three Firearm Makers could retool their factories a lot less expensively, relatively speaking, than all the various, small plants back in 2009 when the bill first came up under the Clinton administration, there was no real push-back from the manufacturers to the Obama Microstamping Bill of 2014, so every firearm's "DNA" is being burned holographically onto the steel casings (no more brass: too expensive) of every round fired...which also, ultimately, made reloading far too expensive for individuals: only the large plants could accurately and legally erase the laser-etched holograph on a previously-fired casing. The Big Three had seen that as a huge upside to the Microstamping Bill--one reason there was no push-back--because it effectively removed the aftermarket for handloading and put them into complete financial control of all small-arms ammunition...

That is a much scarier (and more likely) scenario.

With today's dumbed-down populace, it's always a risk to use words that have been re-defined into meaninglessness by popular culture. I'm pretty sure you understand when I describe your future scenario as fascism. The difference is, I don't think it's 7 years away, I think we're already there (and have been for at least a decade). Fascism: strong nationalism + strong centralized authoritarianism + corporatism (collusion between government and industry). "If you dare question the Halliburton/KBR exclusive contracts, you're un-American!"

We've already started down that road. Whether the frogs will wake up and realize the water is getting hot is another question.

Just a quick update: Based on the U.S. Securities and Exchange Commission filing yesterday afternoon, the purchase price for Marlin Firearms is $41.7 million. Marlin's estimated annual sales are $28.3 million.

Skiprr,

First of all, I'm impressed with your grasp of the economic side of this and thank you for putting the dollar amounts into perspective.

As far as dumbing down / homogenizing the firearms industry - it seems to me that for years, in the '60s-'70s anyway, you could buy a Smith and Wesson or Ruger revolver, a Browning Highpower, or a 1911 - before Glock, Para, Kimber, Kahr, Kel-Tec and so forth. You could buy a bolt-action Remington or Winchester, a BLR, or a Colt AR-15 (not a Bushmaster, DPMS, Olympic or whatever). The '80s and '90s brought many new companies and designs to the market, and that's really cool!

As long as "the right of the people to keep and bear arms" is not infringed - that is, as long as the sovereignty (sorry - had to look up the spelling) of the individual is respected - I'm happy that the marketplace will come up with interesting choices in firearms and ammunition.

I'm afraid I do agree with Kevin - the rise of fascism is pretty well advanced and has been growing since the Spanish-American War. We fell into the trap of trying to be a "big power" like the European colonial powers and have been getting more and more authoritarian and less and less "free" since the turn of the (last) century. No way to know where it will go, and I'm not wise enough to say where I think it ought to go, except that I hope the idea of individual liberty / freedom does not fall so far out of favor that this Country follows the rest of the world into totalitarianism.

Look - I'm getting too depressing and need to end this post or simply delete it. We have more and better guns today than we had when I was young, we have concealed carry in many, many more states than when I was young, and although none of the political candidates we are faced with is at all palatable, that is not a new scenario at all - it is par for the course. Best to stay positive, hope for the best / plan for the worst, and be grateful we retain as much freedom as we do.

Regards,
Andrew

Anyone else find it interesting that the company is named for the three headed dog guarding the entrance to Hades?