Whom Will TASER Buy?

Maybe I'm crazy, but as an investor, I simply can't help but notice the small stuff. That's why, when Reuters interviewed TASER International (Nasdaq: TASR  ) CEO Rick Smith about the retirement of his father, Phillips, from his role as chairman, I zeroed in on this statement:

"He also said the company may look to make some acquisitions with its roughly $50 million in cash."

To paraphrase my favorite TV character at the moment, Jeremy Piven's Ari Gold from Entourage: Really, Rick? Really?

Which competitor actually has something worth buying? BESTEX has a barely comprehensible website and an outdated library of schoolyard put-downs. Stinger Systems' stun guns apparently lack sting. And Law Enforcement Associates (NYSE: AID  ) has problems of its own.

Exactly none of these firms possess a technology that would dramatically improve TASER's stun guns. But one, Law Enforcement Associates, could open more doors at the U.S. military.

Unlike its long-hoped-for-but-never-delivered stun guns, LEA derives modest revenue from sales of surveillance and detection equipment to the military. Not that it's a great business, mind you. Restatements wouldn't be in order if it were. Nevertheless, someone at the Pentagon likes LEA enough to give its bread-and-butter technology a shot. Rick may want to buy his way through that door, TASER pistol in hand.

But is that contact worth at least $36.4 million, which equals the approximate enterprise value of LEA as I write? I can't see how. It hasn't been able to keep pace with last year's sales through the first six months of 2006. Shrinking revenue doesn't exactly bode well for future earnings growth.

TASER certainly has the cash to fund a buyout, even after subtracting the $15 million in cash it could pay to settle a class action suit with shareholders. But the mere existence of that moola doesn't make an acquisition a good strategy, especially if TASER's current competitors are among the prospective targets. Be careful, Rick.

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Fool contributor Tim Beyers isn't easily shocked, but he's pretty sure a TASER shot would do the trick. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get the skinny on everything Tim is invested in by checking his Fool profile. The Motley Fool has an ironclad disclosure policy.


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