A Loaded Gun: Smith & Wesson Aims to Expand with Acquisition

Smith & Wesson Holding Corporation, a firearms manufacturer founded in 1852 in the United States, recently announced its acquisition of Battenfeld Technologies for $130.5 million. This decision comes half a year after Smith & Wesson’s move to vertically integrate with Tri Town Precision Plastics, Inc. of Deep River, Connecticut. The new subsidiary, Deep River Plastics, creates plastic frames for Smith & Wesson firearms in addition to tooling and molding services for the firm. As we’ve seen with our models on vertical integration, a firm can reduce transaction costs by vertically integrating; although, higher coordination costs can reduce the profitability of vertical integration.

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Battenfeld Technologies produces a variety of gun accessories, including gunsmithing and gun cleaning supplies. Smith & Wesson CEO James Debney stated the motives for the firm’s acquisition of Battenfeld; “It also allows us to move more strongly into the hunting vertical as well as establish a strong platform for growth in our existing firearm accessories business, which has been a small but highly profitable part of our company.” The acquisition is an interesting move for Smith & Wesson as more than half of all mergers and acquisitions fail. The company may be working to grow investor confidence in the firm, which has been weak over the past five months (likely due to a variety of domestic and international issues). Battenfeld has thrived as a firm, which should translate positively for SWHC. Nevertheless, Smith & Wesson should focus on cutting costs as public pressure for gun control increases in the U.S.

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2 thoughts on “A Loaded Gun: Smith & Wesson Aims to Expand with Acquisition

  1. Most failed mergers are rooted in motivations that differ from the (theoretical) purpose of the executives: increasing profitability. It often seems that the acquisition is unrelated to the central product of the firm and was merely undergone to increase press for management. In this case, it seems that the acquisition makes sense on the face of things. In the US over the last decade the number of privately owned firearms has increased, however the share of Americans that own firearms has steadily fallen. Smith & Wesson is aware that its market is shrinking and must be looking for ways to cut costs, as Levi points out at the end of the post. If the firm can use this acquisition to build on its presence in multiple categories of the firearm industry and cut costs it will have been successful, however the climate on firearm ownership is uncertain in the US. I think it is unlikely that investor confidence in the firm will pick up anytime soon. Unless the share of Americans owning firearms stops decreasing it will be difficult for most firms in this industry to stay profitable.

  2. The longer the U.S. goes without gun violence, the better this merger may fare in the future. Recent evidence suggests that media’s involvement in gun sales is not broadly underestimated, but plays a very significant role in cultivating public opinion. Public opinion obviously has serious consequences not only for political legislation, but also for consumer sentiment regarding future purchase. Both appear to interact positively with gun sales. In the heat of the gun control debate this past January, gun sales reached all time highs. As media lost focus on the issue, gun sales plateaued. Since, firearm manufacturers have seen another boost in revenue from greater availability as many gun control laws have been shut down. Demand rose and has since risen steadily as Americans have stayed firm in their 2nd Amendment Rights. The merger here should allow broader market exposure, increasing Smith & Weston’s market share. Under current circumstances, it seems as though the merger will result in gains. At the very least, removing a gun manufacturer with the name “Battlefield” should make their products more accessible for the more socially concerned gun owners. Further, Smith & Weston has great brand recognition and should really benefit from expanded output.

    http://fivethirtyeight.com/datalab/support-for-gun-control-slips-as-media-loses-interest/
    http://www.click2houston.com/news/gun-sales-skyrocket-during-black-friday-weekend/30011384

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