Gun Business: GM IPO could open the door for Firearms IPO’s

General Motors has completed the initial filing of paperwork to begin its initial public offering. The auto company recently reported positive quarterly results and the IPO is expected to raise between $15 and $20 billion making it one of the largest IPO’s in history. 

So what does this have to do with firearm IPO’s? GM’s pending IPO could be another signal of economic recovery and stability in a two-year stock market roller coaster.  Generally, companies don’t initiate IPO’s in a rocky market because it tends to undervalue the IPO and generate less financing for the company.  Thus a successful GM offering could be a strong signal for other company’s considering an IPO.

Cerberus Capital, one of the world’s leading private investment firms, is one such company that’s loaded and ready for an IPO. Starting in 2006 Cerberus began a strategic plan of grabbing up firearms companies and placing them in their Freedom Group holding company. Freedom Group consists of a number of firearms and related companies that include Remington, Bushmaster, DPMS Panther Arms, Marlin and Advanced Armament Corporation.

Cerberus holds a 94.3 percent stake in the Freedom Group. Producing sales of $848.7 million in 2009, the Freedom Group has become the largest firearms maker in the U.S. Cerberus filed with the SEC to take the Freedom Group public in October of 2009 but almost a year later they haven’t pulled the trigger yet on an IPO. The Freedom group further saw its sales rise some 17 percent after the election of President Barack Obama sparked increased gun sales as consumers feared possible legislative restrictions.

Gun sales have since slowed into 2010 as the Freedom Group’s first quarter 2010 earnings fell 58 percent compared to the same period in 2009. Slowed sales along with a recent downturn in the stock market are likely the main reasons for the delayed IPO. 

However, a strong IPO by GM along with more signs of economic recovery could make the next 12 months an opportunistic time for a Freedom Group IPO. The offering could raise as much as $200 million in capital. Cerberus is likely eager to raise fresh capital after seeing an 80 percent stake in Chrysler wiped out in 2009 by bankruptcy and its GMAC stake cut to less than 15 percent during the government bailout.

Investors seeking some exposure to the firearms industry would be wise to keep a close eye on this potential offering.  Recent market share reports showed the Freedom Group was number one in the U.S. in shotguns, traditional rifles, modern military-style rifles and ammunition. With 13 brand offerings, a potential of cross selling and potentially more acquisitions the Freedom Group could represent a windfall for investors looking to take a shot.

Freedom Group Family of Companies