Smith & Wesson to Buy Firearm Accessories Firm Battenfeld - Analyst Blog

Smith & Wesson Holding Corporation (SWHC), a leading firearm manufacturer, declared that it has agreed to acquire Columbia, MO-based Battenfeld Technologies, Inc., a leading provider of hunting and shooting accessories.

Is the company eyeing to beef up its business?

Battenfeld is a maker and seller of shooting, reloading and gunsmithing supplies under several premium brands. It sells its products through various sports' goods retailers including Cabela's Incorporated (CAB) and Dick's Sporting Goods Inc. (DKS). Its products are also available online at Amazon.com Inc. (AMZN). Battenfeld enjoys this prominence because of its highly-efficient product development team, renowned for creating innovative and high-quality products.

Smith & Wesson will gain immense traction from this acquisition. Battenfeld will not only provide the company opportunities to enhance its accessories portfolio but also enable it to expand aggressively into the hunting vertical. It will thus provide the company with the right platform for expanding its footprint in the firearm accessories market.

Moreover, Battenfeld has been witnessing organic compound annual revenue growth rate of over 12%, which speaks volumes about the company's robust organic growth strategy and its strength in the field of product development.

Smith & Wesson intends to move its accessories business within the new segment in Battenfeld, hoping to benefit from the latter's expertise and solid distribution infrastructure.

Financial Terms of the Transaction

Smith & Wesson will acquire Battenfeld for $130.5 million in cash as per the agreement and the acquisition is expected to close in mid-to-late December. The company intends to fund the acquisition using its existing cash balance and cash from a $100 million draw on an existing line of credit, which has been stretched to $125 million.

More details will be provided by the company when it reports its second-quarter fiscal 2015 results on Dec 4, 2014.

Will the company rediscover its lost mojo?

Smith & Wesson has been posting declining sales for the past two quarters. This is so because the company has witnessed a significant fall in its sales of long guns, including modern sporting rifles. It had therefore lowered both its earnings and revenue guidance for fiscal 2015 when it reported first-quarter results in Aug, 2014 on account of the sluggish firearm market.

Since the reelection of President Obama in 2012, the company had been seeing higher sales on fears of tighter regulation for weapons. A series of unfortunate shooting incidents in the past – the Boston Marathon terror attack on Apr 15, 2013 and the tragic shootout at the Sandy Hook Elementary School Newtown, CT on Dec 14, 2012 – sparked off fierce controversy about the proliferation of firearms.

However, Obama failed to clear the bill through the Congress that would have put restrictions on these guns. With the removal of the threat of restrictions on gun sales, the earlier rush to possess firearms has ebbed to a large extent. This is reflected not only in the sales decline in the previous quarters but also in the soft sales guidance for fiscal 2015.

Smith & Wesson expects this acquisition to boost its margins, earnings per share and cash generated in the fiscal 2016. The acquisition is also expected to generate incremental revenues of more than $55 million in fiscal 2016.

Zacks Rank

Smith & Wesson currently holds a Zacks Rank #5 (Strong Sell).

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