The other day I reported an out-of-the-blue unsolicited $1 billion takeover bid for Freedom Group, the largest gun and ammunition manufacturer in the U.S. The March 11 proposal by a little-known Palm Beach, Fla., company called Global Digital Solutions struck me as dubious, given the would-be buyer’s tiny size and lack of a track record in the insular small-arms business. The needle on my bizarre-o meter twitched when Global Digital (GDSI) couldn’t put me in touch with its founder and chief executive, a serial tech entrepreneur named Richard Sullivan. Finally, there was the vituperative reaction from Freedom, a privately-held conglomeration controlled by the New York-based private equity firm, Cerberus Capital Management. What the heck is going on here?
That Cerberus might unload Freedom Group—whose brands include Remington, Bushmaster, DPMS/Panther Arms, Marlin, Para USA, and Barnes Bullets—isn’t so far-fetched. Bushmaster manufactured the semiautomatic military-style rifle used by the killer in the December 2012 Newtown, Conn., elementary school massacre., and investor outcry following that horrific event put pressure on Cerberus to announce it would seek a buyer for Freedom Group. After shopping the company around for a while, Cerberus said it would recapitalize Freedom in an arrangement allowing antsy investors to step away from the gun business.
Global Digital’s Richard Sullivan, who eventually got back to me, insists that his ardor for Freedom is genuine. Despite the puny financial scale of his current operation, which trades over-the-counter and has a market capitalization of less than $60 million, Sullivan says he has a long history of starting and acquiring companies—and that he has big ideas for consolidating the fragmented U.S. gun business.
An affable guy with a thick Boston accent, Sullivan has some insightful things to say about the strangeness of established small arms manufacturers having so far resisted the integration of digital features into their products. He’s right that from a purely technological standpoint, it’s odd that small arms by and large haven’t progressed beyond mechanisms anchored firmly in the 20th century.
On the other hand, well-made guns get the job done with current designs, and many users—whether military, police, or civilian—probably would have concerns about relying on a fancy computer system vulnerable to the sort of techno-glitches that occasionally bedevil laptops or automobiles. Sullivan communicates in an almost mystical techno-speak that might stir suspicion in the borderline-paranoid world of gun manufacturing. Even after talking with him, I can’t tell whether he’s making a real offer for Freedom engaging in an elaborate publicity stunt, or indulging a flight of fancy. Maybe it’s a combination of all three.
“We’re working on raising the capital, and we have serious intentions,” Sullivan says. “We want to make a transformative technological contribution to an industry that’s stuck in analog and inevitably must participate in the digital world transition that’s going on. This is about convergence.”
Sure, but what does that mean? “A lot of people who don’t own guns would like to have one if it had digital features that gave them choices,” Sullivan says. “We’re ready to put a new face on an old look. Remington is the perfect platform for us.”
Sorry, still not following. Sullivan speaks about “coupling cyber-based technologies with enhanced digital product development.” He says he’s been through the process before with a company called Applied Digital Solutions.
As best I could tell, Sullivan shares an ambition with a number of other techies to implant firearms with chips that would allow owners to prevent unauthorized people (children, thieves) from misusing their weapons. Such “smart gun” technology theoretically could help locate lost guns and allow for digitally enhanced targeting. It sounds a little like science-fiction, but others are moving in this direction.
TrackingPoint, a startup in Austin, Tex., recently started selling expensive long-distance rifles that incorporate laser and computer technology, as well as a three-dimensional color graphics display, to allow even a novice shooter to hit moving targets at 500 yards. TrackingPoint hopes to market its wares to the military for use by snipers.
The larger potential payoff, though, would be in the civilian sector. TrackingPoint rifles feature a Wi-Fi transmitter that permits a high-end hunter to stream live video and audio to an iPad (AAPL) and post impressive kill shots on Facebook (FB) and YouTube (GOOG). Depending on how tricked-out consumers want their customized weapon, TrackingPoint offers rifles for $22,000 and up.
Sullivan seems to envision a mass-market version of the TrackingPoint business plan, one that might expand from rifles to include handguns. He professes to understand that the National Rifle Association has long resisted smart-gun technology as a step toward stricter gun control. That’s an obstacle TrackingPoint, too, will encounter if it gains any heft in the civilian market. Sullivan says that he’s had quiet communication with NRA representatives to reassure them that he intends his advances to be purely optional—another choice that would expand the universe of gun owners—not a feature that government could mandate as part of some scheme to monitor or limit the use of firearms. Sullivan, by the way, says he doesn’t own a gun himself—an admission that will amplify alarms within the NRA.
He says that he has constructively exchanged information with investment bankers representing Cerberus. That, however, isn’t the sense one gets from Freedom’s stony public silence about Sullivan’s offer—or the memo Freedom Chief Executive Officer George Kollitides sent to employees (and which Freedom then leaked to friendly gun industry websites). The memo derided Global Digital as “an agenda-driven group with no credible financing options.”
In a letter to Kollitides on March 17, Sullivan countered that Global Digital “is serious and qualified to acquire” Freedom, which he called “a valuable and iconic global brand leader that deserves a better alignment between shareholder base and the business/industry.”
I don’t know whether Kollitides understood what Sullivan was talking about in his letter. I didn’t. In any event, Sullivan says he hasn’t received an answer. One thing about the gun industry: It’s never boring.