Tactical Products M&A Update – October 2024

Tactical Products M&A Remains Strong, Highlighting Resilience

Capstone’s latest Tactical Products M&A Update reports that market players have faced a myriad of challenges to the operating environment, including a raw materials shortage, softening demand, and price increases for consumers. However, merger and acquisition (M&A) activity in the sector has surpassed the prior year period on the back of loosening investment restrictions for private equity dealmakers, and a consistent foundation of demand from the sector’s core consumers.

Significant pricing power among entrenched players in the Tactical Products sector has stemmed the tide of slowing demand and supply chain shortages. Public companies operating in the sector have reported slower sales growth, reinforced by the National Instant Criminal Background Check System (NICS). In order to soften the blow, leading sector players have increased prices for ammunition, the most inelastic product within the sector. Notably, The Kinetic Group has introduced two separate price increases during 2024. The company is the largest manufacturer and distributor of ammunition products in the U.S. through its Federal, Remington, CCI, Hevi Shot, and Estate Cartridge brands. This has partially offset The Kinetic Group’s sales decline and has improved the company’s adjusted EBITDA margins.

Across the Tactical Products sector, M&A activity through year-to-date (YTD) 2024 has increased 41.7% compared to the prior year period. This has been an encouraging development for the sector, as deal volume in full-year 2023 was the lowest since 2018. M&A targets in the Tactical Products sector have been diverse in their core product offerings, with many tactical accessories providers receiving significant buyer interest. Notably, Good Sportsman Marketing (GSM Outdoors) was acquired by Platinum Equity in July for an undisclosed sum. The acquisition has been indicative of rising platform activity by private equity firms in the Tactical Products sector. Sponsor platform acquisitions have only comprised 20.6% of total deals in the sector to date. However, this has been a considerable shift compared to the prior year period and full-year 2023, which saw one platform deal.

The increase in platform activity may be due to recent trends in private equity investment restrictions. Historically, many private equity limited partners (LPs), especially public sector pension plans, have placed restrictions on general partner (GP) investments in firearms companies. Recently however, public sector pension groups have been easing restrictions on firearm investments due to certain state level regulations. Of note, a law passed in 2022 in the state of Texas prohibits state government entities from entering into contracts with companies that “discriminate against the Firearm and Ammunition industries.” This indicates that private equity groups with Texas-based pension LPs, who explicitly avoid investments into firearms companies may be violating Texas state law. As the Tactical Products sector continues to open up for private equity, M&A activity is expected to gain momentum.

Also included in this report:

• An overview of the current ammunition shortage and the political efforts in motion to restore the sector’s supply chain.
• Why the closing of a historic deal in the sector provides future stability for the Consumer end market.
• A breakdown of public company data across the Firearms & Ammunition, Less-Lethal, and Sporting Goods Retailers segments.

Capstone Partners’ Consumer Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Consumer Industry. Our team partners with leading mid-to-large sized business in the Tactical sector that serve growing end-markets. For more information on Tactical Products market trends featured in this report or to speak with one of our Tactical Products Investment Banking Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today to start a conversation.