Tactical Products Market Update – May 2024

Activity Among International Buyers Drives M&A in the Tactical Products Market

The Tactical Products merger and acquisition (M&A) market has demonstrated strength following the post-COVID normalization in consumer demand during 2023. Amid the pandemic, the Tactical Products market experienced a period of elevated M&A activity, with deals reaching a peak of 41 announced or closed transactions in 2021. Indicative of the demand for tactical products during this period, the National Instant Criminal Background Check System (NICS) saw background checks rise to a record level of 39.7 million in 2020, according to the Federal Bureau of Investigation (FBI).¹ Background checks have since dropped 24.7% from 2020 to 2023 and M&A activity has declined 30.7% over the same period. However, NICS levels in 2023 were still 5.2% above pre-COVID 2019 levels, highlighting the continued U.S. consumer demand for tactical products. Perception around crime in the U.S. has fueled demand for personal defense, as 77% of Americans think there is more crime in the U.S. than the year prior and 55% of Americans personally worry about crime and violence, according to Gallup.² Through year-to-date (YTD) 2024, Tactical Products sector M&A activity has shown resilience against interest rate pressures, matching YTD 2023 activity with 11 deals announced or closed. Notably, international buyers have become active players in the U.S. Tactical Products M&A market. Bolstered by increased ammunition production for the war in Ukraine, European players in particular have targeted the U.S. Consumer market as an area of growth.

Recent public company performance has highlighted an increasingly robust U.S. Consumer end market for tactical products. Of note, Colt CZ Group (SEP:CZG), a Czechia-based ammunition and firearms producer, posted the strongest fourth quarter in the company’s history due to both yearly and quarterly increases in its U.S.-based revenues. Colt CZ operates in the U.S. through its two main Tactical Products brands, Colt’s Manufacturing Company and CZ-USA. Founded in 1847, the Connecticut-based Colt’s Manufacturing offers pistols, rifles, and firearm accessories for consumers and military & law enforcement (M&LE) customers. Colt’s revenues in the U.S. Consumer end market increased 8% year-over-year (YOY), according to an investor presentation.³ However, CZ-USA, a separately branded line of Czech and Turkish imported firearms, saw a 32% drop in its U.S. revenues YOY. Overall, Colt CZ Group’s U.S. Consumer end market revenue experienced increases of 32.5% YOY and 25.9% quarter-over-quarter (QoQ) in Q4 2023, highlighting the strength of its Colt brand, according to its 2023 annual and YTD Q3 reports.^{4, 5} Additionally, 66% of American consumers have shown a preference for products made in the U.S. (Morning Consult),⁶ amplifying international buyer appetite for U.S. tactical products businesses. Tactical products enthusiasts also emphasized this trend at the SHOT (Shooting, Hunting, and Outdoor Trade) Show, which saw a record of 55,400 attendees at its most recent conference in January 2024, according to the National Shooting Sports Foundation.⁷ Despite the post-COVID normalization in demand, robust consumer and international buyer appetite for the U.S. Tactical Products market is likely to spur M&A activity.

Strategics continue to acquire tactical products companies with an M&A strategy becoming increasingly separate and distinct from other outdoor recreation products companies. Family offices that are aligned with the mission of tactical products companies also continue to show investment interest, and increased anti-ESG sentiment may have an impact towards more investment in the sector.

Peter BaileySenior Director, Capstone Partners

Tactical Products M&A Stabilizes Through Year-to-Date 2024

Deal volume in the Tactical Products sector through YTD 2024 has remained on pace with the prior year period, matching the 11 transactions in YTD 2023. While acquisition appetite in full-year 2023 saw a 28.9% decline YOY, the consistent flow of deals through YTD in comparison to the prior year has been encouraging for the future of sector deal activity. Comparatively, the broader middle market (enterprise value <$500 million) saw a 35% decline YOY in M&A activity through Q1 2024, according to Capstone’s Q1 2024 Capital Markets Update. Tactical Products sector M&A has also fared slightly better than the wider Consumer industry in recent years. M&A deal flow in the Consumer industry declined 29.5% YOY in 2023 and 9.6% YOY in 2022, according to Capstone’s 2023 Consumer Industry Annual Report. In comparison, transaction activity in the Tactical Products sector declined 28.9% YOY in 2023 and 5% YOY in 2022.

Strategic buyer interest in the sector has continued to be robust. To-date, strategic buyers have represented the vast majority (81.8%) of total transactions while financial buyers have accounted for 18.2% of total transactions. This has mirrored the distribution of buyers through YTD 2023, where strategic and financial buyers accounted for 74.1% and 25.9% of total transactions in the space, respectively. Strategic buyers have typically targeted the sector at a much higher rate than sponsors, as strict investment requirements from limited partners (LPs) around firearms have historically muted private equity activity in the Tactical Products sector. Of note, strategic buyers accounted for 79.5% of total transactions in 2020, 60% of total transactions in 2021, and 63.2% of total transactions in 2022. International strategic buyers have viewed M&A as a viable path for growth, targeting the U.S. Consumer end market in order to increase market share in the Firearms & Ammunition segment. Furthermore, heightened geopolitical conflicts have increased competition among international players in the Tactical Products sector to shore up critical defense supply chains. Notably, the ongoing battle for the right to acquire Vista Outdoor’s (NYSE:VSTO) Sporting Products segment has punctuated the international interest in U.S. tactical products businesses. Coupled with signs of an increasingly healthy U.S. Consumer end market, robust strategic buyer interest is expected to support Tactical Products M&A through 2024.

Geopolitical Conflicts Motivate Consolidation Activity in the Firearm & Ammunition Segment

International interest in the U.S. Tactical Products market has provided an optimistic outlook for growth in the space. Geopolitical conflicts, especially the war in Ukraine, have fostered a well-capitalized Western European defense industrial base. This has provided European sector participants with consistent revenue opportunities, an increased acquisition appetite, and the ability to fund research and development (R&D) for consumer products. The war in Ukraine has also created significant ammunition shortages throughout both the U.S. and Europe, which have been felt by both consumers and M&LE customers. Consequently, leading European tactical products businesses have sought to consolidate smaller ammunition manufacturers in order to bolster the supply chain. Notable recent transactions involving ammunition companies include Colt CZ’s acquisitions of Sellier & Bellot (December 2023, undisclosed) and swissAA (June 2023, undisclosed), and Beretta’s acquisition of RUAG Ammotec (March 2022, undisclosed).

Acquisition appetite among European sector players has expanded into the U.S., where the Consumer end market is expected to provide opportunities for organic and inorganic growth. Beretta, an Italian light firearms manufacturer founded in 1526, has planned to invest $536 million over the next five years to expand its presence in the U.S., including an $86 million ammunition manufacturing plant in Savannah, Georgia, according to an October interview with Beretta CEO Pietro Gussalli Beretta.⁸ In addition to increasing its manufacturing capacity organically, Beretta expects to remain acquisitive by targeting U.S. manufacturers. “Our potential acquisitions will not be state-owned companies, rather quality industrial companies that manufacture products which complement our current product range. These will always be products which have a technological advantage. This is our approach,” commented Pietro Gussalli Beretta, in the interview. As international players look to expand their U.S. manufacturing presence and target inorganic growth, middle market businesses in the Tactical Products sector operating along the value chain may experience increased acquisition interest from international buyers.

Vista Outdoor Acquisition Highlights International Buyer Activity in the U.S. Market

Vista Outdoor’s attempt to spin-off its Sporting Products and Outdoor Products segments has emphasized the increasing acquisition interest from international buyers. In May 2022, Vista Outdoor announced that it would be spinning-off its Sporting Products and Outdoor Products segments into two separate public companies known as The Kinetic Group and Revelyst. Due to a stagnant initial public offering (IPO) market in 2022, which saw an 82.1% YOY decrease in volume to 71 closed IPOs (KPMG),⁹ the spin-off was delayed. In October 2023, the Czechoslovak Group (CSG), a Czechia-based manufacturer of military avionics and large-caliber ammunition, announced its intention to acquire The Kinetic Group for an enterprise value of $1.9 billion. Vista Outdoor’s Kinetic Group has become one of the largest manufacturers of primers, a critical component of ammunition that ignites the propellant powder. The completion of CSG’s announced acquisition would give the company close to 70% of the global Primer market, according to the Minnesota StarTribune.¹⁰

While awaiting the acquisition’s approval by the Committee on Foreign Investment in the United States (CIFUS), Vista received multiple new and unsolicited acquisition bids. The first was from Colt CZ in November 2023 to acquire the entirety of Vista Outdoor for $30 per share, equivalent to $2.8 billion in enterprise value. This offer was rejected by Vista Outdoor’s board outright. The second offer was from private equity firm MNC Capital Partners which offered to acquire Vista Outdoor in its entirety for $35 per share, and then $37.5 per share in its most recent updated offer in March 2024. The MNC Capital bid has remained competitive, and Vista’s board of directors have set a date in June 2024 for stockholders to vote on whether the MNC Capital or CSG acquisition should proceed. The nearly two-year long competition for the right to acquire Vista Outdoor, with two of the three bids coming from leading European defense manufacturers, highlights the confidence that international buyers have in the future of the Ammunition market and the strength of U.S. Consumer demand for tactical products.

U.S. Domiciled Buyers Maintain Strong Acquisition Appetite

While international strategic buyers have shown a robust appetite for U.S. tactical products businesses, U.S.-based buyers have continued to play an active role in the sector’s M&A market. An optimistic sign of growth has been the confluence of international and domestic interest in the sector which has stabilized YTD M&A activity against continued declines in volume seen across the broader M&A landscape. Notable transactions by U.S.-based buyers in the sector are highlighted below.

• Hodgon Powder Acquires RCBS Reloading (May 2024, Undisclosed) – Hodgon Powder, a Kansas-based supplier of smokeless and black powder substitute propellants, acquired RCBS Reloading from Revelyst in May 2024 for an undisclosed sum. RCBS is a California-based manufacturer of reloading equipment for rifles and pistols. The company’s main customer base has typically consisted of hunters, competition shooters, and sporting enthusiasts. Through the transaction, Hodgon adds reloading equipment to its portfolio of Firearm & Ammunition segment products, while Revelyst is able to prioritize its identity as an outdoor products business in anticipation of the Vista Outdoor acquisition. “Selling RCBS allows us to raise cash to create a more dynamic portfolio for our company’s future. Revelyst will use proceeds from the sale to enhance the operational efficiencies of the company’s power brands, evaluate bolt-on acquisitions, and invest in maker-fueled innovation and organic growth,” said Andy Keegan, Revelyst’s CFO, in a press release.¹¹
• Daisy Manufacturing Acquired Crosman (April 2024, Undisclosed) – Daisy Manufacturing, a leading producer of air guns and ammunition and portfolio company of BRS & Co, acquired Crosman from private equity firm Compass Diversified (NYSE:CODI) in April 2024 for an undisclosed sum. Crosman designs and manufactures air guns and air gun accessories under the Crosman, Benajamin, Game Face, Laser Max, and Centerpoint Optics brands. The acquisition will likely make Daisy Manufacturing the largest provider of air guns and related accessories due to its existing market-leading portfolio of air gun brands including Daisy, BSA, GAMO, and Winchester. Proceeds from the transaction are expected to be used to pay down the debt of Velocity Outdoor, a Compass Diversified portfolio company and the former parent company of Crosman, according to a press release.¹²

To discuss domestic and international buyer appetite, provide an update on your business, or learn about Capstone's wide range of advisory services and Tactical Products market knowledge, please contact us.

Joe Collins, Analyst, was the lead Market Intelligence contributor to this article.

Endnotes

1. Federal Bureau of Investigation, “NICS Firearm Background Checks: Month/Year,” https://www.fbi.gov/file-repository/nics_firearm_checks_-_month_year.pdf, accessed April 30, 2024.

2. Gallup, “Crime,” https://news.gallup.com/poll/1603/crime.aspx, accessed May 17, 2024.

3. Colt CZ Group, “Preliminary Financial Results 2023 Investor Presentation,” https://www.coltczgroup.com/file/1152, accessed April 30, 2024.

4. Colt CZ Group, “Financial Results 9M 2023,” https://www.coltczgroup.com/file/1069, accessed May 15, 2024.

5. Colt CZ Group, “Annual Financial Report 2023,” https://www.coltczgroup.com/file/1159, accessed April 30, 2024.

6. Morning Consult, “Made in America Report,” https://pro.morningconsult.com/analyst-reports/made-in-america-reshoring-consumer-goods, accessed May 17, 2024.

7. National Shooting Sports Foundation, “2024 SHOT Show Concludes with Record-Breaking Success,” https://www.nssf.org/articles/2024-shot-show-concludes-with-record-breaking-success/, accessed April 30, 2024.

8. Beretta Holding, “Interview with Il Corriere della Sera,” https://berettaholding.com/en/interview-with-il-corriere-della-sera-we-will-not-stop-after-switzerland-we-will-make-more-acquisitions-and-expand-in-the-usa/, accessed April 30, 2024.

9. KPMG, “IPO Insights Q4 2022,” https://kpmg.com/us/en/articles/2022/ipo-insights-q4-2022.html, accessed April 30, 2024.

10. Minnesota Star Tribune, “Plans to sell Federal ammunition to Czech company progress as U.S. group makes another offer,” https://www.startribune.com/vista-outdoor-federal-ammunition-mnc-capital-partners-increases-bid/600354249/?refresh=true, accessed April 30, 2024.

11. Vista Outdoor, “Revelyst Announces Sale of RCBS,” https://news.vistaoutdoor.com/newsroom/press-releases/press-release-details/2024/Revelyst-Announces-Sale-of-RCBS/default.aspx, accessed April 30, 2024.

12. Compass Diversified, “Compass Diversified Announces Sale of Crosman Air Gun Business,” https://ir.compassdiversified.com/news/Press-Releases/Press-Release-Details/2024/Compass-Diversified-Announces-Sale-of-Crosman-Air-Gun-Business/default.aspx, accessed April 30, 2024.