Cerberus, the private equity fund that nearly ruined itself by making bad bets in Detroit, particularly on Chrysler, is considering taking its gun company interests public. According to a report in The Wall Street Journal, the firm "is in advanced preparations for an initial public offering of Freedom Group Inc." The company has about $900 million in sales.It seems clear that the gun industry is a much steadier money-maker than the auto business. "Last quarter Smith & Wesson made an operating profit of $17 million on revenue of $102 million, an impressive margin. The company has $35 million in cash and modest long-term debt of $83 million."
The move may be a profitable one for Cerberus. Gun company Smith & Wesson (SWHC) trades at just above $5, near the high end of its 52-week range. That gives the company a market cap of $300 million on sales of about $345 million. On a ratio-and-proportion basis, that would make Freedom worth close to $800 million.
Is that true? Are there as many guns as cars? This is bad news for those of us who hate comparisons. If this get out, I'll be bombarded with the old substitution game again.
There are probably as many guns in the U.S. are there are cars. Gun sales to law enforcement and military interests are always going to offer a steady flow of sales.
Cerberus will probably be able to do with guns what it could not do with its auto interests -- make money.
What's your opinion? Are guns a good investment? Besides law enforcement and military, America is certainly a sellers market as far as firearms are concerned.
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