Cerberus Said to Have Struggled to Find Advisers for Gun Sale
Cerberus Capital Management LP struggled to find investment banks to help sell Freedom Group Inc., the gun company whose rifle was used in the shooting spree in Newtown, Connecticut, said people with knowledge of the matter.
Banks including JPMorgan Chase & Co. (JPM), Credit Suisse Group AG (CSGN) and Barclays Plc (BARC) declined to advise New York-based private- equity firm Cerberus on the sale and also won’t represent a potential buyer, said the people, who asked not to be identified because the process is private. Many of the banks were concerned about potential damage to their reputations, the people said. Cerberus is getting help from Lazard Ltd. (LAZ) on the sale, several of the people said.
It’s a rarity on Wall Street for so many banks to eschew an assignment, especially one potentially worth millions of dollars in fees. Freedom Group could fetch as much as $1 billion, according to data compiled by Bloomberg. With President Barack Obama pushing for tougher firearm-control laws and the debate polarizing the public, most banks are lying low, according to Douglas Elliott, a fellow at the Brookings Institute in Washington, which does research on U.S. public policy.
“Good investment banks will stay away from transactions where the company or management is not reputable,” said Elliott, a former investment banker. “It’s pretty rare that they will stay away because the public doesn’t like the industry.”
At least one bank willing to work with Cerberus on the sale of Freedom Group is Lazard, said several people familiar with the matter. Lazard doesn’t have a mandate or contract to sell the business yet, one of the people said.
Cerberus also tried to hire a second, larger bank as an adviser, but was rebuffed, said these people. Larger banks are often needed in auction processes to help finance deals.
A senior Lazard banker, Frank A. “Terry” Savage, is close to Cerberus chief executive Stephen A. Feinberg, said one of these people. Lazard has worked on a number of deals for Cerberus in the past, said this person, such as advising it on the purchase of grocery chain Supervalu Inc. this month.
Judi Mackey, a spokeswoman for Lazard, declined to comment. The Wall Street Journal previously reported that Cerberus had hired Lazard.
Cerberus may have to wait several months to sell Freedom Group, until the controversy dies down and it’s clear what legislation is forthcoming, one of the people familiar with the matter said. Peter Duda, a spokesman for Cerberus at Weber Shandwick, a public relations firm, declined to comment.
Additional banks that passed on representing a buyer or the seller of Freedom Group include Deutsche Bank AG (DBK), boutique investment bank Centerview Partners and Evercore Partners, some of the people said.
Goldman Sachs Group Inc. (GS) also passed on representing Cerberus, said a person familiar with the matter. It is unclear whether the bank could later decide to work with a buyer, this person added.
Even with the negative publicity around gunmakers right now, Freedom Group may fetch $745.7 million to $1.13 billion in a sale, based on the ratios of enterprise value to Ebitda, or earnings before interest, taxes, depreciation and amortization, of publicly traded competitors such as Smith & Wesson Holding Corp. and Sturm Ruger & Co., data compiled by Bloomberg show.
The sale effort has drawn interest from some wealthy individual bidders and one European gun producer, one of the people said. Brazilian gunmaker Forjas Taurus SA could also bid for the company, according to analyst reports from brokerage Coinvalores and Wedbush Morgan Securities.
Cerberus may have to take a lower price or be unable to sell the business because so many banks are unwilling to work on the deal, said one of the people with knowledge of the matter.
Representatives for JPMorgan, Goldman Sachs, Deutsche Bank, Barclays, Credit Suisse and Centerview declined to comment. A representative for Evercore didn’t return a call seeking comment.
Bank of America Corp. didn’t try to seek a role advising Cerberus on the Freedom Group sale, said a person familiar with the matter. It isn’t working for a buyer at this time, this person added. Bank of America has many clients in the gun industry from manufacturers to small retailers, another person added. A spokesman for Bank of America declined to comment.
JPMorgan has in the past taken a stand on other deals or companies it views as risky. It has declined doing any business with Chesapeake Energy Corp., the second-biggest U.S. gas producer, out of concerns about the company’s credit quality and fast growth, people familiar with the matter said in June 2012.
Investment banks typically have a reputational-risk committee that weighs the public costs of exposure to doing deals with company that make tobacco, firearms, casinos or other businesses that raise touchy moral issues or could harm their reputation.
Freedom Group, which made the AR-15 Bushmaster used in the Newtown shootings, also owns firearms-maker Remington.
The market value of the world’s top six publicly traded gunmakers plunged by $215 million in the week after the Dec. 14 school shooting that killed 20 elementary-school students and six adult staff members. Most of those stocks have since trimmed or erased those losses.
The gunman, 20-year-old Adam Lanza, had previously shot his mother to death at their nearby home. He committed suicide at the school.
Freedom Group posted losses in 2011 and 2010.
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