This Gun Kills Kids—and Reaps Profits

Freedom Group is having a pretty good year. The economy may be stuck in a low gear, but the company's sales are growing rapidly—up 20%, to $237.9 million, in the third quarter of 2012 compared to the same period last year. Thanks to a “considerable increase” in demand for Freedom Group’s core products, the company told investors, “the market is expanding quicker than the industry can increase production.”

Those core products? Guns and ammo.

Freedom’s “family” includes Remington, maker of sniper rifles and shotguns; Advanced Armament, maker of silencers; Para USA, maker of 9mm pistols; and Bushmaster, the company behind the Bushmaster .223 semi-automatic rifle that authorities say Adam Lanza used to kill up to 27 people at close range at Sandy Hook Elementary School last week. “With a Bushmaster for security and home defense, you can sleep tight knowing that your loved ones are protected,” reads its website. “Bushmaster offers everything you need to ensure the safety of you and your family.”

Freedom Group, based in Madison, N.C., might have been just another American success story, quietly introducing new products, innovating, and seeking new customers, largely out of public view. But that might change in the wake of the Newtown shooting and ongoing debate about the future of guns in this country.

Same goes for a private-equity firm called Cerberus Capital. Based thousands of miles away in New York City, Cerberus owns Freedom Group. It has about $20 billion in assets, and a leadership team that includes former vice president Dan Quayle and former treasury secretary John Snow. Its billionaire founder, Stephen Feinberg, is a major Republican donor, giving $217,000 in campaign donations in the past three cycles, according to Opensecrets.org. That included $100,000 in August to Friends of the Majority, a Republican super PAC; $9,800 to Rep. Ben Quayle (son of Dan); $30,800 to the Republican National Committee in October; $58,500 to the National Republican Senatorial Committee, and $7,500 to Mitt Romney.

Cerberus itself is much like any other private-equity firm. It is agnostic about the type of business it invests in. Cerberus’s portfolio includes manufacturers, airlines, time-share companies, banks, and health-care firms. The company’s modus operandi is “centered on integrity, patience, and a unique business model that applies significant financial and operational resources across the firm’s investment strategies.” Of course, some important details are missing from the Cerberus website. It doesn’t note that two of its largest and most high-profile acquisitions—GMAC in 2006 and Chrysler in 2007—ended in disaster. (You won’t find Chrysler or GMAC, which the firm allowed to go bankrupt and left taxpayers on the hook for $1 billion and counting, in its list of case studies) And you won’t learn that one of its investment strategies has involved building a company that makes weapons—the type used by military organizations, hunters, recreational shooters, and occasionally murderers.

In this New York Times piece, Natasha Singer described how Cerberus, starting with Bushmaster, acquired several gun and ammunition brands, including Remington, Marlin Firearms, and Dakota Arms. Together, they have made Freedom Group “the most powerful and mysterious force in the American commercial gun industry today.” Typically, private-equity firms seek to cash out of their investments through initial public offerings or sales to other companies. Neither has happened with Freedom. But Cerberus, the Times noted, did receive a return on investment in 2010, when Freedom sold about $225 million in debt “to pay itself a special dividend used to buy back preferred stock from Cerberus.”           

Cerberus appears to be indifferent to public relations and to its public image. In the wake of last Friday’s attack, the company has been quiet. I couldn’t find statements of any sort on the websites of Bushmaster, Freedom Group, or Cerberus. Public-relations officials for Cerberus and Freedom Group didn’t return phone calls seeking comment.

Despite its high debt load, Freedom Group is reporting profits. It has been doing well because demand for guns is rising—as it has ever since President Obama was elected and many owners began to fear (without foundation) that the government would take away their weapons. It continues to offer new products to its customers. “One of our core strategies is to consistently introduce new and innovative products,” Freedom Group said in its most recent quarterly report. New products include the “Marlin XT Pro-Fire Trigger, and the Bushmaster Adaptive Combat Rifle, which retails for about $2,500. Meanwhile, economic fear, returning military veterans, and the rising popularity of hunting and recreational shooting are all factors boosting demand.

But of course the Freedom Group does face some challenges. The company noted in its most recent quarterly report that sales of its products are subject to major government regulation. “Changes in regulation could materially adversely affect our business by restricting the types of products we manufacture or sell or by imposing additional costs on us or our customers,” it noted. What’s more, the zeitgeist could change. “Regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions.”

And of course, when you make products that have the capacity to inflict so much human misery, there’s always the prospect of litigation. After a Bushmaster XM-15 was used in the Washington sniper shootings, the company’s then-owner agreed to pay a $550,000 settlement to shooting victims.