Analysis of the Gemtech and Smith & Wesson Deal

[Editor's Note: This is a guest post from RECOIL contributor and one time tie-wearing finance-guy Matt Stagliano.]

It’s been a while since I saw acquisition related news in this business that actually got me excited. With the recent announcement by RECOIL that Smith & Wesson, a division of the American Outdoor Brands Corporation purchased silencer company GEMTECH for an undisclosed amount of money, I get to put on my M&A hat and make a few predictions about this deal.

Let it be said, I have no inside information, nor do I have any connection to the companies outside of writing an article here or there. What I do have is many years of acquisition integration experience so take that for what it is.

First off, acquisitions happen. It shouldn’t be a surprise to anyone. Typically a company like GEMTECH quietly leaks to the market that they are shopping around for a buyer. This would make sense with Dr Phil Dater stepping back in recent years and handing the reigns to current CEO Ron Martinez. A well polished executive like Mr Martinez is often installed at a company to advantageously leverage his network and to help them get acquired. With a finance background, Martinez is uniquely positioned with access and experience in a deal like this. Whether or not that was the intent, this deal surely sits in his wheelhouse.

It’s not really a surprise that AOB is on the hunt. AOB has been putting up great numbers recently – 24.9% increase in sales year over year and a 41% margin has them thinking about growth in their Firearms and Outdoor Products & Accessories segment where S&W is squarely seated.

Acquisitions like this do not happen in the blink of an eye. Usually there is a courting period between acquirer and target, then the deal maker/check writer/Biz Dev folks get together and come to a basic term sheet. Once the lawyers have their way with it, and the executives (key employees) all have their golden parachutes figured out with salary, stock, and whatever other retention clauses there are, then it starts down the path to announce.

Speaking of retention, I would give Ron Martinez a two year period where he has to remain with the division in order to lead the S&W&G ship. It also gives S&W a scapegoat if anything goes wrong down the line, but I don’t see that happening. Martinez is a sharp guy. My guess is that S&W would also create some level of non-compete that would go into effect after Martinez’ departure, but those are rarely worth the paper they are printed on.

Read the rest of Matt's analysis, here, at Firelance Media.

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