Please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730 for further information on mergermarket and how to receive more articles like the one below.
--------------------------------------------------------------------------------------------------------
Colt Defense’s private equity parent, Sciens Capital, is evaluating all exit options for the company, said a source familiar with the situation. These options could include sale to a strategic or financial buyer, the source added.
An industry source claiming knowledge of the situation said the company had walked away from talks with a suitor in recent months, adding that there were disagreements over price. The source familiar with Colt, however, said the company has received a good deal of interest but denied that serious negotiations had occurred recently.
Sciens is continuing to evaluate a number of options for Colt, though, including sale to a strategic or private equity buyer, or a possible IPO, the source familiar said, but added that it was premature to know if going public was the best exit. Colt has attracted strong interest from private equity players, and the company has been talking to industry contacts about its options for the past three to five years, said the source.
In 2005 Colt filed to go public but stopped the process to entertain interest from a strategic suitor, which ultimately fell through, the source said. During that time the company had a dramatic increase in growth and Sciens decided to hold off on an exit, said the source.
Past reports from this news service named General Dynamics as the mid-IPO suitor.
An analyst said ”everyone sees Colt as having strong potential and strong risk.” The company’s potential is in its valuable government contracts and brand equity; the risks involve issues with the union at its Connecticut manufacturing facility, said the analyst, adding it was a union strike that caused the company to go into bankruptcy - and which Sciens then bought it out of. Sciens has resolved most issues, but still would rather do its manufacturing somewhere else, he said.
Colt Defense has more than one government contract, several of which expire later than 2009, despite industry speculation to the contrary, the source familiar said. An industry banker, lawyer, and executive said these contracts make the company attractive. The lawyer said product sales to the government can be very lucrative, and there is also strong potential for cross-selling and licensing opportunities afforded a strong brand name such as Colt.
Additionally, the potential for a change in the political climate stemming from the 2008 elections creates a possibly urgent timing issue that Sciens is likely considering, the banker and lawyer concurred. Even so, the lawyer said, a change in political climate would be unlikely to cause the government to start buying A4’s from a new supplier.
The industry banker, lawyer and analyst said Cerberus’s experience with Remington and Bushmaster make it a logical suitor for Colt. Any sort of hurdle to returns, however, such as Colt’s union problems, may turn off a PE buyer, said the lawyer.
The banker said that industry multiples are not consistent, but a Colt Defense deal could be comparable to the premium single-digit multiple Smith & Wesson paid for its recent buy of New Hampshire-based Thompson/Center Arms for USD 102m last December, based on each target’s strong growth prospects and brand equity. In fact, Smith & Wesson continues to be acquisitive, the banker said, though he wasn’t sure how interested they might be in Colt Defense, since the business does not have a consumer aspect. The analyst and industry executive agreed, saying Smith & Wesson was more likely to be interested in Colt Manufacturing. Sciens also owns Colt Manufacturing, which is a consumer arms business and a separate entity with slightly different shareholders, the source familiar said.
According to previous reports from this news service, Colt generated USD 14.3m in EBITDA in 2004. The 2005 offering, to be underwritten by Banc of America, was planned for USD 86.25m.
Calls to Colt Defense were not returned. A Sciens official declined comment.
--------------------------------------------------------------------------------------------------------
mergermarket is an M&A intelligence tool focused on providing actionable, origination intelligence to its client base of the world’s principal advisory firms, investment banks, law firms, private equity firms and corporates. mergermarket provides clients with articles such as the one above in real-time via an online platform and personalized email, BlackBerry alerts and an online platform. For more information;
please email ft@mergermarket.com or call EMEA: + 44 (0)20 7059 6105 Americas: +1 212 686-5277 Asia-Pacific: +852 2158 9730
