Remington Arms, the oldest gunmaker in America, was forced to file for bankruptcy after its private-equity owners put the company under a heavy debt burden, making the guns and ammo manufacturer incapable of benefiting from the massive turnaround underway in the firearms market this year.
Now, Remington is looking to sell off its ammunition business and has accepted a stalking horse bid of $65 million from JJE Capital, the private-equity firm that owns Palmetto State Armory, a South Carolina-based firearms manufacturer.
A stalking horse bid sets the stage for competing offers, so if other buyers are interested, their bids will need to be higher or better. It's a perfect time for Vista Outdoor (NYSE:VSTO) and Olin (NYSE:OLN) to consider stepping forward.
Locked and loaded
Vista, Remington, and Olin are the three biggest ammunition manufacturers in the country, selling to consumers, law enforcement, and the military.
Vista's Federal line is the biggest ammunition brand on the market, but the company also sells other brands, including American Eagle and Speer. Although it exited the firearms market when it sold its Savage Arms business a year ago to focus more on outdoor markets, it kept a finger in the pie by retaining its shooting sports operation, which runs parallel to guns through sales of ammo and shooting accessories. That segment represented 68% of Vista's revenue in fiscal 2020.
Olin is better known as a specialty chemicals producer, but it has also owned the Winchester brand for 90 years, and ammo sales represent 11% of its total revenue.
The Remington brand would be in good hands if either company were the buyer.
Burdened by debt
This is Remington's second trip to the bankruptcy courts in as many years, having filed for and then emerged from bankruptcy in 2018. High legal fees and interest payments on its loans during a period when the industry was in a major sales slump sent it back into bankruptcy in July, this time owned by its creditors, including Franklin Templeton Investments and JPMorgan Asset Management.
A sale of the entire business was in the cards as the Navajo Nation made a bid for the company, but negotiations fell apart. Now, Remington is trying to unload just its ammunition business for the time being.
Remington has received offers from several unnamed buyers for both the entire business and for parts of it, including the ammunition segment. It will hold an auction on Sept. 17 for higher or better offers than the stalking horse bid, and the sale will be finalized a week later on Sept. 24.
Shooting out the lights
The gun industry is booming. After a three-year slump unlike any seen before in the business, sales are breaking all records.
The FBI reports the number of background checks conducted through the National Instant Criminal Background Check System (NICS), and NICS activity is surging at unprecedented rates, up over 42% year to date. Even the National Shooting Sports Foundation, which adjusts the FBI data for a better indication of industry demand, believes there have already been more background checks conducted through Aug. 2020 than for all of last year.
Vista itself saw a 22% increase in ammo sales, and Winchester sales jumped 17% year over year at Olin (in the segment's fourth consecutive quarter of earnings growth).
A unique opportunity
There's a reported ammunition shortage across the country, and the addition of Remington's capacity could help Vista Outdoor and Olin better meet demand.
It doesn't look like the massive surge in gun and ammo sales is going to let up any time soon, and with the presidential election less than two months away and the potential for increased unrest across the country, people will be looking to protect themselves, their families, and their property in ever larger numbers.