How Cerberus Became the King of Guns

Quartz:

Cerberus quietly dominates the American gun industry, selling more firearms and ammunition in the US than anyone else. In 2008, by its own account, Cerberus’s Freedom Group sold half of the nation’s semiautomatic rifles along with 37% of traditional rifles, 31% of shotguns, and 33% of ammunition. All told, Freedom Group says it sold 1.2 million long guns and 2.6 billion bullets in the 12 months between April 2009 and March 2010, the most recent year for which data is available, generating $846 million in revenue.
How Cerberus, which is perhaps best known for being little-known, came to be the main player in the world’s biggest gun market speaks to dicey business of manufacturing firearms and the darker aspects of private equity. Cerberus didn’t return messages seeking comment.
Bushmaster Firearms—the company whose AR-15 style rifle has been used in mass shootings from Newtown to Aurora, Colorado—began as a producer of pistols for Air Force pilots shot down over enemy territory. Richard Dyke purchased the company in 1978 and turned its focus to more powerful weapons with larger magazines, including the AR-15, a version of which is pictured above, and its equivalent for military and police, the M-16. By 2005, the company was doing $65 million in sales but didn’t see a way to grow further.
Cerberus had never owned a gun company, but it thought it could provide Bushmaster with a classic private-equity solution: tighter management and a tie-up with similar companies. Cerberus bought Bushmaster in 2006 for an undisclosed sum, formed Freedom Group as a holding company for its firearms business, and then went shopping. Here is the spree of acquisitions as detailed in a regulatory filing with the US Securities and Exchange Commission: (see above)
That filing came in 2010 as Cerberus, then hobbled by poor investments in carmaker Chrysler and mortgage lender GMAC, attempted to cash out of the gun business by taking Freedom Group public. “After bad bets on cars and home loans, Cerberus Capital Management is turning to guns and bullets,” began a Wall Street Journal story about the offering. And this is how Freedom Group made the case for its future growth to potential investors:

We believe that a meaningful percentage of current firearm sales are being made to first time gun purchasers, particularly women. We further believe that the introduction of first time shooters, as well as the renewed interest of many existing shooters, will translate to increased participation across the ever-widening array of shooting sports. In addition, the continued adoption of the modern sporting rifle has led to increased growth in the long gun market, especially with a younger demographic of users and those who like to customize or upgrade their firearms.

Modern sporting rifles include the kind used in the Newtown attack. They’ve been a source of growth, particularly among young men, in an industry that has otherwise struggled to find new customers.

It is scary to think of Cerberus in charge of tons of guns, considering how badly they shot themselves in the foot (almost in the head) on the Chrysler and GMAC deals.   At least in the auto industry, they were the gang that couldn't shoot straight.  Luckily for them, in this business they have a built-in lobby in the NRA.