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.
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.