America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery
nytimes.com
nytimes.com
"I wonder how many times we're going to keep seeing news media post these sorts of news stories as a 'woah, a tornado hit this landmark' without including one single line about 'the landmark was put in the care of a tornado factory a few years back and never saw another repair'"
In what universe is "I borrow a bunch of money, buy a company, then force the company to basically borrow money from me" a value-creating operation? Cuz it sure isn't this one.
It will never happen.
Is one way better than the other?
The other way is absolutely better. The "bang" you hear is the bursting vacuum of PE sucking all the value out of the company, depositing it in their bank account, and leaving others holding the bag, a bag that's now far bigger because the company now has less to no ability to satisfy its obligations.
But the PE firm made billions for (sometimes, less than a year of) "management and consulting fees".
These kind of leveraged buyouts are perilously close to what Tony Soprano does to Ramsey Sports and Outdoors - take a controlling interest (albeit by a different method), utilize the business' credit lines, assets and collateral to bring in a lot of (temporary) value, transfer it out of the company, and leave the smoldering ashes of a company massively bankrupt with bad debts all over town, including many it didn't have before the buyout happened.
In my situation, my employees profited nicely from a PE acquisition. They all got a sizeable transaction bonus. Not only that, they received additional job security with the backing of a large company.
For certain, groups where individuals all act in their own self interest sometimes come up with the best solutions for everyone. It bothers me that people believe either maxim must always be true for all circumstances. (this is effectively socialism vs. libertarianism) It seems very clear to me that each camp has supporting examples, and that there are very few universal maxims.
Getting back to the main point, I think there have been many instances were selfish private equity has made things worse for people, which does not discount instances where it has made things better.
I still don't believe that a founder doing what's best for them and their family is "wrong". Absolutely, employees should be a concern and a founder looking to be acquired should do whatever possible to ensure a successful future for them as well. But to say that a founder must own a company forever and ever with no chance at ever exiting is not something I can agree with.
No hard feelings, but I hope we can both take away here that there are nuances to this topic (and every other topic) and to say that "selfish behavior is wrong" is too extreme a statement.
The universe is a cold, uncaring place. Part of the reason we create societies is to improve on that.
Conversely, without the World you are nothing. You can't survive without the help of others.
If you are an alien learning about humans, you should start with some children's books. I think you're missing some pretty fundamental knowledge here
What I'm hearing you say is that once a founder starts a business and hires a single employee they must operate that company until death. That seems like a ridiculous position to me and perhaps you're missing some fundamental knowledge on life. If that were somehow codified to law, I would've never started a business.
[1] http://www.americanbusinessmag.com/2012/03/selling-your-busi...
Not sure what terminology you would pick for that - "debt bombing" or "reverse Phoenixing"! The end result is that they stripped it. Then if any liability, they could write that debt off against tax liability and or factor off the debt. Failing that - asset write-off equally works well on tax gaming. Then there are the remaining assets (Like the Brand name for example) that they could sell off cheaply to a company they indirectly own that specialises in licensing... It's a vicious circle at every level when it comes to finance in business. Good news or bad news - somebody profits and a few more people pay.
I will confess - I'm still unclear of the legal and accounting practice aspects that allowed the parent company to push down debt like that. But then debt loading is another way of stripping a company. Though does read a bit like Phoenixing, just in variation that appears to skirt the law and respective regulations in finance and companies. Though, how they could push down debt without raising any flags would be a candidate for root cause in this travisty.
This doesn't get mentioned often enough when talking about the "1-percenters" and the wealth gap in Western countries, i.e. that most of the capital behind all of the current economic and social system is directly or indirectly held by part of the general populace itself.
The issue is of course that the other part of the populace (generally speaking people under 35 who cannot put money towards their retirement funds or who can only get temp jobs) are not part of this financial arrangement and, as it so happens, are also some of the worst affected by the current economic set-up (those temp jobs I was mentioning are not as great as the normal full-time jobs held by people whose pension funds are managed by the companies investing in Cerberus).
Afaik almost no politician has focused on this social and economical contradiction, if I may call it this way, some of them are putting whole of the blame on the 1-percenters, some of them are choosing to ignore it all together, but almost no-one has actually looked at the real numbers. And the real numbers tell the story of a society divided in two, a part that will manage to enjoy its pension and the other part that has no clue how will pay for its old age.
I’m certain it’s caused a drop in tax revenue from what would normally constitute middle class tax payers.
Edit: In fact, what they say/act that they are shocked about is often a projection they put up to make sure they get reelected.
See 20% deduction on self employment income.
So you might actually see increased revenues as a result.
Decent question though.
tell, who doesn't have people in the lower rungs of their IT group with more expensive cars or outfits than you would feel comfortable with at twice their salary? then top off the people who eat out every day who are usually part of the "only contribute to the 401k to the match" crowd.
yes there are people struggling but many who are gainfully employed struggle too because they have no discipline and worse some don't want help.
the education system needs to concentrate more of teaching children to take time in acquiring things and first get a safe financial base to work from. politicians needs to stop pandering to people's jealously and blaming it all on the rich, here's a clue the real one percent outside the odd billionaire are the politicians who write the rules and sell favors through their law making work (tax code, occupational regulations, and property zoning)
With many of my generation spending upwards of 50%, sometimes even 70% or more, only on housing, how on earth are we expected to build savings? With six figure student loans that aren't dischargeable in bankruptcy and medical bills at similar conditions? We will be the explosion that finally shows how fucked up pension systems and wealth allocation have become, and this bubble will explode in about 40-50 years, if not earlier.
Add climate change to the mix which our politicians won't do anything for the coming 10, 20 years and which will inevitably and unpreventably explode at the same time... yes, definitely, I rather have a life now, I won't be able to make it to retirement anyway, no matter what I do.
"sure, there is no way you can walk over that pile of broken glass without cutting your feet, so fuck it, lets get naked and roll around in it, at least you'll feel the breeze gently waving your nether parts for the first half of the process"
There is no way one can build up savings to shoulder such shit, much less are savings to be used for medical issues!
EDIT: A bit more, since I didn't really address your comment about out of network charges.
In the event that you get balance billed for some surprise out of network charge despite going to an in-network facility, you likely don't have to pay it, even though they're invoicing you. Contacting your insurer about it will likely take care of it. And if it turns out that you do need to pay it, hospitals are generally willing to accept $0.10-0.20 on the dollar for self-payers who can't pay, before they send it to collections. You don't have to pay the retail price, which is totally made up and has very little relation to what they'd accept. This is largely due to their adversarial relationship with the insurance companies, which force them to accept the lesser of their retail price and their contracted rate. Think of the high prices as the starting point in their negotiations.
I fully agree that the US healthcare system is very messed up, and that what I'm saying sounds insane and unnecessary. I wish we had a single-payer system in the US (with optional private insurance on the side). Fortunately, it seems like people are getting sick of this, and we're getting closer to getting that. I just wouldn't take the attitude that the world is totally fucked, so you should live for today.
That depends if the US gets another four years of Trump, or a repeat of the final Obama years with a sane President blocked by a Republican-dominated congress.
I would not be so certain that the outcome of the 2020 election is a Democrat president, a Democrat controlled House and a Democrat controlled Senate - and even if all three end up in Democrat hands (which I hope for!) those in power should rather not be bought off by the insurance industry.
To make it worse, even if all stars align and all of this happens, there still remains the problem of exploding rents preventing anyone who rents (=99% of the young population) to make meaningful savings or retirement contributions, and to top that one off student loans also are in dire need of reform and hell will freeze over before the US will even consider the German model of tax-funded world class universities.
A meteor can kill me in the next five minutes, why would I ever bother going to the gym? In fact, w
But that's not really even it. Spending tons of money (especially money you don't have, which always costs more) is not what you do if you care more about experience than money. Someone who values experience over money spends time learning different ways of cooking beans & vegetables - delicious, nutritious. She gets a bike, learns to maintain it, and rides it everywhere, including to the farmer's market. After some advanced practice maybe she even learns to make her own clothes. These are all fulfilling and empowering experiences that deprioritize the spending of money. It even feels a little bit rebellious, because you don't have to earn tons of money, and can be somewhat less dependent on a consumerist lifestyle and all the hidden burdens that go with that. Like credit card debt servitude for instance.
That's what "money is less important" looks like. Whereas if the "experiences" you like are flying to Europe and shit, you like money. You're a Davos-ass mothafucka, with a Sasquatch carbon footprint, to boot. Life isn't Instagram. Glory lies in all directions and experience comes no matter what. Everything is an experience and most of the good ones are free. Don't fall for advice from your ignorant-ass peers, or from influencer/manipulators, or from lazy shallow journalists who want to characterize your whole generation in one wildly-inaccurate sentence!
Wealth comparisons are tricky, e.g they'll show that Americans are some of the poorest people in the world because there's a large fraction with debt (e.g homes, credit cards, student loans). While technically true, that doesn't really match our intuitions for what wealth means.
If your finances throughout your life are not in order, if you have high debt, regardless if it's because of medical bills, student loans or too big a car and house, you are in a weak position. What good does a nice car do if you worry about bills and if you try to avoid to look at the balance in your banking app?
You don't always know how rich some folks are, but for the most part it's easy to see if someone is living above their means, if you get a little anxienty on those people's behalf, then good!
John lives in extreme poverty. He's debt free, but is unable to adequately feed himself or his family. Several of his children have died from malnutrition.
Marc lives in a nice suburban home, has 3 square meals a day, so does everyone in his family. However, his debts (including his mortgage, car payments, student loans) exceed his savings.
If our intuition is wrong, then John is winning. He's ahead of Marc financially.
But I can tell you which one of them I'd rather be. It's not John.
- newly purchased $150k home with down-payment of $30k
- $80k savings / investments
- $20k car
- $80k/yr income
This person is not at risk, but they have a net worth of $[30k + 80k +20k - 150k] = $-20k
If you imagine that we are all born in a kind of "debt" where we need a home to live in, then a mortgage is just putting that debt on paper.
As a personal choice, I don't accept any excuse for taking on debt to fund a lifestyle. It is just not a good idea.
I've talked to people who come up with these crazy justifications in their 20s why spending money now is more important than spending money later; I don't know why it is so hard to accept that these decisions have a 20 year time horizons and that they are going to live to be 75. The averages are pretty clear, if you prioritise financial security above incidental expenses you can have both.
Expensive experiences are not worth more than financial security, they don't meaningfully contribute to people's lives or happiness. You can be just as happy playing sports with locals to meet new people as traveling to exotic locations to gawp at nice architecture and meet new people. In 10 years you won't notice if you cooked your own food or had someone else do it for you. An expensive car will not bring a normal person good luck. You can live in a couple of different houses over a lifetime and save much money with little downside.
The pleasure of a purchase is not an urgent need.
If you take your salary and divide it by a reasonable interest rate, then you get the value of yourself as an asset, or the equivalent amount of capital you would need not to work. It is a large amount if you choose a realistic interest rate.
So, sure, a few hundred thousand in debt for school or a house is not such a big deal when you consider that an ordinary salary is equivalent to a million or two in capital.
The issue is cash flow, which seems to be what you are acknowledging, so how do you get to a fanatical anti-debt stance?
I spun a off topic; nickelcitymario's original scenario riled me up. It compared someone with a steady income to someone without an income and concluded that the person with an income had a financial edge because they had debts - that isn't right, the person with the income is ahead because they have an income.
A mortgage, car payments and student loans are luxuries that are not required to make an income; and the people I know with those things tend not to be using them to make money but rather to fund a lifestyle (for reference, I think the wealthiest set of friends I have are not university educated, buy second hand cars and rent - very relaxed lifestyle).
It is a common trope that people misjudge debt, take on too much, turn themselves into debt slaves and then suffer. They misjudge the situation and charge in when they are young and haven't really had time to learn about what makes a person happy. It is annoying that people keep downplaying the costs and risks of debt - it is an expensive, usually long term commitment and it results in ordinary people having less wealth. Wealth is hugely beneficial in strategic and tactical terms.
Just to be clear, I wasn’t saying Marc was better off because of debt. I was saying he was better off despite having debt. I was responding to the specific idea that Americans are poorer than people in other countries because they have more debt. My point was it’s entirely possible (and common) to be better off despite having a negative net worth.
Others spoke to this better than me, though, when discussing cash flow and the like...
Under the assumption that his wages track with inflation, you might be right. He'll be able to scrape and hustle and pivot right until the day he dies. That's not a "win." When his health inevitably falters, he'll have increasing difficulty finding work, accumulating ever more medical debt. Chances are, his children will be dependent on him well into middle age, but "his" house and assets will vanish to cover debts.
A good outcome is one where we're making enough to save up for a comfortable retirement. That's not the reality for, perhaps, most people born after 1980
The entire point of taking out a loan is that you don't have the assets available to outright buy the thing you're taking out the loan for. Obviously, people can take on too much debt, be trapped by usurious interest rates, and so on; you need to be realistic about how much debt you can afford, and a lot of people aren't (often through no fault of their own). But "my total debt at this moment in time exceeds my savings" is not in and of itself a harbinger of financial doom.
Negative net worth just means you can declare bankruptcy when necessary. Positive cash flow is what keeps you out. The risk is that an interruption to that cash flow can mean that you have to take the bankruptcy option.
Not quite the same as having it in-hand, but it’s real unless conditions change drastically.
Both cases are poor examples. Financial health has two components; assets and cash flow. John can be in a better situation if his cash flow is good and he is solvent, but will always be facing more risks if he lacks key assets like a home.
You have a nice car you can drive around?
I mean, the purpose of money is to do things with it. The balance in your banking app is only relevant because you desire to put it to some purpose. If you stop desiring to put it to some purpose, you're equally equipped whether or not you have a positive balance, and if you already have put it to some purpose like a nice car, you've accomplished the actual goal you wanted and should stop getting distracted by the means. (You should, of course, continue to pay attention to the means if you have other, unfulfilled goals. And perhaps you should think about whether having a nice car is more of a priority than those goals. But the goals are not money in and of itself.)
If you've got debts from student loans or mortgages that are set up such that you can pay those debts slowly and in a way you can afford to pay, and in the meantime you've got money to spend, you are actually fine. A balance sheet that only looks at how much is in the bank and how much you're in debt and not at how much you can afford to hold that debt is not telling the full story.
(This is, incidentally, the same reason the national debt isn't a big concern: nobody is going to demand that we pay that debt right now. So going further into debt gives the ability to do more things with that money, i.e., it gives us the effect of having more money, even though on paper we now have less money.)
...If $5,000 is something you could afford, ask yourself the same question again with $100,000 (fire burn down your house?), with $250,000 (cancer treatment and your health insurance kicked you off?). For everyone, there’s some number which is the largest size of a financial shock they could weather.
This number is probably the truest measure of a person’s real wealth: What is the largest unexpected financial shock you could sustain without the cost of that to you suddenly becoming ten times the original cost or more? That number isn’t something easy to calculate; it depends on whether you have a family that can help you out, on your income, on whether that shock involves losing your job (and thus your health insurance, if you live in the US), on whether you have access to any other sources of security (including public assistance)....
https://shift.newco.co/2017/12/04/your-financial-shock-wealt...
Reality is unimportant. Is perception that matters to society.
I think it has been propagated since then as a different claim that the top 1% had 95% of the increase in all the wealth for the past decade. I don't think there is any evidence for this stronger claim.
[1]: https://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdf
I think the keyword there is indirectly. It's still easy to blame the 1-percenters for the proportional lion's share of the blame when the majority of the general populace's influence/control over their investments is intentionally gatekeeped and/or obfuscated by "professional finance" people, many of whom are 1-percenters or wish-they-were.
In the case of legitimate pensions that is top-to-bottom controlled by finance people with almost zero control from the average pension.
In the case of the modern faux-pension, the 401k, while most individuals could take direct control of how they invest those funds, and that's supposedly a feature, very few actually do/will, because the game is rigged (401k providers have a lot of vested interests in promoting their investment products where they make the most fees) and also a full time job that the 401k "owner" doesn't need on top of their existing job that pays into the 401k in the first place (again, giving the 401k providers the benefit of defaulting people their investment products with the most fees).
Even further, the push to "personal responsibility" to the individual in a 401k system also removes a lot of power of the general populace to collectively bargain as investment holders. Under the regime of traditional pension systems a lot of hedge funds were checked by pension managers when employee/pensioner interest was kept in mind (especially in the cases where pensions were managed by Unions rather than employers or outsourced to professional finance firms; there's a good history of hedge funds versus Unions on the books some of which used to stop leverage buyouts).
> And the real numbers tell the story of a society divided in two, a part that will manage to enjoy its pension and the other part that has no clue how will pay for its old age.
Even when federally mandated pensions existed there was always an interesting line between pension-earning work and the rest. It's not an entirely new worry, it's just continuing to get a lot worse.
Even worse is how much the breakdown of the earned pension system to the "privatized" 401k system is creating a weird muddy ground in between the extremes of people that sort of have retirement investments, but no longer have collective bargaining power, often have more middlemen eating their share of the pie, and everything is much more of a gamble.
Really? I can't imagine how to spend 20 hours per year on 401(k) related topics, let alone 40 hours per week on it. If you're under 40, buy a broad-based stock fund and forget about it. (Probably true if you're under 50.) Use the 40K hours you save by not having this extra "full time job" however you like.
The stock fund is a product designed by a third-party to make money for them, which was the poster's point about you not being in control of your pension in that case.
If I wanted exposure to a broader index of mid-cap stocks, I have FSMAX (Fidelity Extended Market Index), at 4.5bpp (0.00045 of AUM). $1MM in that fund would cost me $450 annually.
As I get closer to retirement, Vanguard's Total Bond Market (VBTLX) is available at 5bpp (0.0005 or $500/year for the notional 401K millionaire).
It's true that mutual funds pay the managers of those funds, but you don't have to pick the 50 or 100 bpp funds. On average, it's unlikely that population of 401K investors will outperform the population of professional money managers before fees. Not that many people have a 7 figure 401K account. Not all 401Ks allow individual share investments.
There's a pretty limited upside to spending even 100 additional hours on 401K investing in an attempt to beat the pros out of their $150-500 in fees.
Pensions are often formed with unsustainably optimistic assumptions, and many of them will be insolvent at some point in the future. The temptation to mortgage the future for the benefit of the present is too tempting for people. Pensions do have a very nice set of attributes, but guaranteed benefits are hard to guarantee without being extremely conservative, which people have a hard time with.
Do you really think politicians have not focussed on the insane economic and social developments because they somehow failed to obtain those "real numbers"? Oops, we had no idea that people are crushed by student loans and lack of retirement arrangements?
Quoth Bladerunner: Every civilization was built off the back of a disposable workforce
Then when I looked more, I realized, he _wrote explicit policy on his website_. :O
https://www.yang2020.com/what-is-ubi/ , hop into the question that's: > Why does Andrew Yang want to implement Universal Basic Income (UBI) in America?
This might be a stretch. It's where my mind went, and I think it's interesting, so I hope this comment is in good taste!
As the system is designed, it doesn't matter so much who's money it is, it's who controls it and collects fees from steering it.
Wouldn’t these private equity firms lose the ability to borrow money based on past practices like this?
The cult of modern business thinking blinds folks in business from the obvious stupidity of the private equity business model. Self dealing almost never ends well.
Everyone is getting sold, so no one really knows the truth.
> When these so-called “leveraged buyouts” worked, investors made a hundred or a thousand times their money.
then it only needs to work a small percentage of times they try it to remain highly profitable.
Consider the alternative for where people can park their money - sovereign debt paying effectively zero paid for in an inflationary currency.
There is logic here. It isn’t great, but it’s there.
Because you know, we stripped out most of those laws.
No, it's just plain immoral, not to mention short-sighted. American primary and secondary schools are also squeezing their teachers, by hiring Filipinos on J-1 visas, just like tech companies do with H-1Bs.
It's a bit like like making room in your fridge by pushing everything back, then adding new stuff. It works for awhile, but eventually leaves you with a mess of spoiled milk and rotten vegetables in the back. You can only strip-mine a hill for so long before it's gone.
I don't think STRS has had the same push for divestment, but they're known for taking a more activist approach. IIRC CalSTRS actually has multiple employees whose entire job is to lobby gun companies to change their policies.
Of course that sort of political and shareholder pressure is what led Smith and Wesson to start putting integral locks in the frame of their revolvers. That decision has had an almost universally negative response from their actual customers— those in-frame locks have a tendency to get rattled around by recoil and freeze the gun in an unsafe state.
All part of the game that got them into this mess in the first place.
But business and finance are not software. Their systems are made of people. When you waste a CPU's time by ignoring its nuances, you simply get less out of it. When you shuffle money around, writing off the nuances of industry and economics as blips in a monetary machine, you destroy lives. I understand the appeal of the engineering mindset, but you have to be a psychopath to continue in it while leaving such destruction in your wake.
I'm curious about this statement. NIC checks are, as the name implies, instant. They happen upon transfer of ownership of a firearm from an FFL dealer. So I'm not sure how they 'foreshadow' sales, more likely they mirror sales. In fact, when you purchase a gun online, the sale occurs before the check...
Need or want? Like any other hobby your limit is your budget.
There are guns that exist for no other reason than the lulz ("hundred dolla problem solva" I'm looking at you). Historically inclined individuals could spend a fortune just collecting variants of one specific niche of firearms from a particular nation and time period.
From my experience, that's sort of low. I never thought my neighbors had so many guns, until I started spending time at the shooting range. A common site is a trunk packed to the gills with firearms. The "gun guys" buy them like the "sneaker guys" buy Nikes. They usually won't talk about it, unless you express interest or go shooting with them.
It's actually a really neat collection, but I wince at how much it had to cost and how much use he actually gets out of them.
You don't have to shoot a gun to appreciate it. My great grandfather's service revolver? It's a link to the past, not a range toy.
They also make great investments as a quality firearm holds it worth and often increases in value.
"The correct number of $ITEM to own is n+1, where n is the number you own now."
$ITEM can be "mountain bikes", "guitars", "road bikes", "motorcycles", "guns" or pretty much anything.
The old estimates are bad, for example, 275 million new in to the market guns were counted by a system the BATFE introduced in 1999 for high volume manufacturers, importers and wholesalers, a total of 66 FFLs, that no academic had previously used in an estimate.
I can count on one hand the number of people I know who own a home but don't own a firearm.
I grew up in an affluent suburb of Massachusetts, where guns were really uncommon.
I got stationed in Yuma, Arizona, where pretty much everyone owned guns.
Here in a suburb of Portland, OR, it's somewhere in the middle. Oregon is an interesting state.
I'm not anti-gun by a long shot (no pun intended), but pictures I have seen of some of these "collections" are staggering (like, enough guns and ammo to arm a small platoon of people).
In many cases they aren't displayed as a collection, but closer to a weapons cache in waiting...for what kind of situation I don't know.
https://www.cnn.com/videos/world/2019/04/30/violent-uprising...
So while the "average" owner might have 1-3 guns (in this case), and the average "fanatic" might have 5-10, you have enough obsessives to throw things off.
(Carefully does not look at bookshelf with literal hundreds of RPGs)
/sigh
No, there's plenty of demand for guns. Remington's just lost their former reputation.
I agree free market (with certain safeguards) is usually the best path for a society to sustain itself and prosper.
But I feel private equity firms are definitely not good for a free market to sustain itself. And yet they and their lobbyists will insist free market is the best for our society, use that line to prevent any regulations over what they do.
We don't have any pity for auto manufacturers who make garbage and lose badly. Why would anyone have pity for gun manufacturers who do the same?
This is pretty much it. Sad, considering I own a fine bolt-action paper puncher from Remington in .223. But it's no more complex than what you pointed out.
It used to be that almost every American household had someone who was a competent shooter, an good cook, a competent musician, a decent craftsperson or repair person of some kind. Times have changed.
From what I have seen, only having 1 gun is more common in the African American community and in some parts of rural America.
I grew up in NYC and moved to a country town when I was 10-11 years old. Guns were forbidden things that only cops and soldiers should have from our family's POV -- it was really awkward.
But the sporting, enthusiast and security drivers of demand for firearms is real and legitimate, and folks in that culture are equally confused about the point of view. My parent's neighbor had a bunch of guns -- probably like 20. Some were antique, he had shotguns for deer, trap/skeet, birds, rifles for hunting and target shooting and cheap ammo guns for plinking and practice. Shooting sports were family activities that were positive things. I was into baseball, my neighbor was into shooting and archery.
Unfortunately, the toxic politics around the issue encourage extreme positions and ultimate reduce real and nuanced issues into binary positions that encourage bad behavior. It doesn't help that extreme positions make money for different stakeholders.
I saw several estimates that agree on average somewhere between 8 and 10.
A couple of bolt action rifles for hunting, rimfire for plinking with kids, a pump-action shotgun stashed somewhere for home defense, a pistol to carry concealed, another pistol as backup, grandpa's revolver that is now a decoration, and three old rifles in various state of decay at the back of the safe that everyone forgot about - those are all very typical.
>You build something, people want it, pay money.
>Competition happens and you need to change or die
Don't change quick enough, you are dead. Big companies can't change quickly, but they can throw money at problems. Death of a company is inevitable.
Like there's a lot of discussion about usage and practicality among gun enthusiasts, but when they buy their 3rd or 6th gun ... I suspect the decisions are more about difficult to predict things and whims.
It is a strange market.
Historical examples:
* The Firearm Owners Protection Act banned machineguns manufactured before 1986.
* The Federal Assault Weapons Ban banned certain semi-automatic weapons excluding those manufactured before 1994.
Firearm hobbyists need decade-plus forward thinking predictions. What's today legal is a felony tomorrow, unless steps are taken now.
This makes it a volatile guessing game, even more than other hazardous hobbies (cars, aircraft, martial arts, motorcycles, etc.).
You see popular revolvers selling well... nobody is buying those based on the law.
There were lengthy and severe shortage of small arms and ammunition following both Obama's election and the Sandy Hook shooting, especially .22 caliber ammunition. [1]
I don't think .22 ammunition is on the chopping block, but there's a general positive feedback loop, like a bank rush.
[1] https://en.wikipedia.org/wiki/2008%E2%80%9313_United_States_...
Perhaps related to this scam, I don't remember any company other than Remington building out a major increase in capacity, that article mentions their $32 million plant expansion. Companies were reluctant since they didn't know when demand and supply would get back in sync, I would also wonder if smokeless powder capacity was a factor, there aren't very many companies that make it.
Places out east (NY, NJ) have extremely low limits for capacity, both in effect and proposed. When ammunition capacity is reduced, there is an incentive to go for a (typically) more reliable revolver. Many people would rather have say a 7-shot 357 S&W wheelgun vs a 9-round (maximum) semi-auto magazine.
I ankle-carried a .357 snub for most of my life, and it literally weighed less than the 5 rounds that it held.
In case anyone isn't reading between the lines:
The chief advantage of a more complicated, less reliable, more expensive semi-auto handgun is its larger capacity in a smaller profile. A semi-auto packs rounds tightly together rather than having an effective chamber around each one.
But if you don't actually get more rounds, might as well opt for a revolver like the parent.
Why would the price matter?
A company should also have only as much cash as it needs, else management will waste it
So a private equity company sees a company like Remington, with too much cash and not enough debt. It borrows a lot, buys it, and minimizes cash reserves. This tends to increase the market cap substantially
However, this obviously has some downsides, if you don't get the default risks just right...
Is it that between when the holding bought the stock back from Cerberus and Cerberus (via the holding) sold the bonds Cerberus had control of Remington (via the holding stock) and therefore effectively sold Remington's assets, paying themselves through the holding's stock. Then, when Remington was valueless, the holding bought the stocks back from Cerberus as if Remington still had value leaving the bond holders hanging?
That's such a dumb scam. Why would anyone buy those bonds, and how was Remington able to get a loan to buy the holding's stock if Cerberus raided it?
Cerberus is then out of the transaction with $225M - $118M. Remington + S (which Cerberus no longer owns) has $252M + $225M in debt.
hmm. so, who is willing to loan Remington $225M in that situation? it seems like "recently bought by private equity company known for shenigans" would discourage banks and prospective bond purchasers?
Who could refuse such a deal?
ah, thank you for pointing that out.
but then:
> In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt
hm so the first set of lenders were paid off. did the second set get similar terms?
But by and large most private equity shops are not in the business of asset stripping. Those deals just don't make the news and the average reader is oblivious to them
As a way for old-timers to retire and pass on control of small private companies, LBOs are really useful. The problems started in the 80s when private equity firms realized they could sell enough junk bonds to do LBOs on giant publicly-traded companies.
Also to the two cerberus funds in which it has invested are have produced 14-17% IRRs
https://www.calpers.ca.gov/page/investments/asset-classes/pr...
The owner can say, hey I worked for this and I need to exit with a plan.
Well, the employees can say we worked for this and we need to make sure we will have our jobs in 5 - 10 years.
I am working in a company that used to be privately owned, and was sold to a PE. It happened before I joined. The ones who are still here tell me the night and day difference in how the employees are treated before and after the sale. The treatment I'm talking about is how the employees are compensated.
Companies are man made so the have a limited live span. There is no exception, every man made organisation will end. While this is sad for every single case, the finitnes is a good thing at all.
Thinking on finitnes of companies, stock market indexes have a mathematical limit.
Please don't throw the baby out with the bathwater
The Mk13 which is expected to replace the Marine's scout snipers M40 is 700-pattern, just not built by Remington.
You're going to be right soon, just not yet.
Likewise, "The Military" is still using Rem 870 and Mossberg 500 shotguns. The "other military" that is, the IRS, Deptartments of Interior, Energy, Education, and everything else; their SWAT teams all use the Rem 700 and 870.
The problem is that even their basic offerings have drastically declined in quality. If you make plain oatmeal, you'd better be really, really good at it, or else you have absolutely nothing going for you.