Citing concerns over being drawn into a heated national gun debate, private equity firm Cerberus Capital Management announced on Tuesday that they will hire advisers to carry out the sale of its investment in gunmaker Freedom Group. Freedom Group manages Bushmaster Firearms International, which manufactures the weapon used in the Newtown, Connecticut shootings of 27 people, including 20 children. The firm said it was not attempting to sway the debate on gun control but had deemed the sale of Freedom Group was in the best interests of its clients, which include the retirement funds of civic workers, endowments, institutions and individuals. Cerberus acquired Bushmaster in 2006.
Cerberus is not the only private equity firm with substantial assets in the gun industry. Longpoint Capital tripled its holdings in Savage Sports, a manufacturer of rifles, when it sold the company last January in a takeover financed by Norwest Equity Partners. Sciens Capital Management holds an interest in Colt Defense. Cerberus says that it plans to return money from the sale to investors.
It is uncertain who would be a prospective buyer for Freedom. According to a banker familiar with the weapons industry, it is possible that any number of foreign gun manufacturers, including Forjas Taurus of Brazil and Herstal Group of Belgium, could be interested. So far this week, shares of U.S. gunmakers, Sturm, Ruger & Company (NYSE: RGR) and Smith & Wesson (NASDAQ: SWHC) have slumped sharply because of what analysts called ‘fear caused by the threat of increased gun regulation’.
The Freedom Group includes brands such as Remington Arms, the largest and oldest maker of rifles in the country; Marlin Firearms, a producer of lever-action rifles; and Advanced Armament, which makes of pistol silencers. The company did attempt to go public in 2009, but pulled the IPO last year after its economic performance weakened.
If Cerberus is able to sell Freedom Group and make a profit, the beneficiaries would be Cerberus’s investors, which include two of the country’s leading pension funds; the California State Teachers’ Retirement System, and the California Public Employees’ Retirement System. Both have investments with Cerberus. Ricardo Duran, a spokesman for the California State Teachers’ Retirement System, supported Cerberus’s decision to drop Freedom Group and said it would continue to be an investor with the company. The group has $600 million invested in Cerberus funds, which gives it a 2.4 percent holding in Freedom Group.