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Guns, Guns & Money: Private Equity Could Lock & Load with Democrat ’12 Sweep

Here’s a funny thing about investors that back firearms makers and parts suppliers: even if they agree with everything Texas Gov. Rick Perry says, the last thing any of them want is the Republican to win the White House next November. It would be terrible for business. Perry is as likely to back increased restrictions on firearms ownership as he would be to declare a statewide moratorium on executions in Texas tomorrow. No, only a Democrat in the White House will drum up business in the short term, by panicking consumers to storefronts and gun shows with threats of increased restrictions, and the PE firms in the multi-billion dollar American firearms business know it.

Cerberus Capital Management’s Freedom Group, a collections of firearms makers the PE firm sought to bring public earlier this year (an attempt it later abandoned), had this to say in a federal filing about the increase in demand for their products, following President Obama’s November 2008 victory: “Demand for certain ammunition increased significantly in 2008, which we believe has been due in part to increased consumer uncertainty relating to new and potentially more restrictive legislation.”

There were, in fact, tremendous concerns that the President would push for adoption of radical firearms policies, but these fears have yet to come home to roost. Clearly, the incumbent President’s re-election is something that few private equity professionals can stomach at the moment, thanks to Democrats’ recently declared war on carried interest. In fact, to bet on a Democrat sweep in 2012 may go against the very fiber of their being. Still, there’s a lot to like about the firearms industry—and private equity firms including MidOcean Partners, Bruckmann Rosser Sherrill, Clayton Dubilier & Rice and Sciens Capital Management have been active in the space in recent years.

Falling price points on components used for assault rifles, among other firearms, have coincided with manufacturers being increasingly able to use more durable plastic that, in turn, is increasingly essential to the consumer. Until fairly recently, clips being used for guns like the M-16 were metal; if you dropped it and dented it, you would not find out that the clip was damaged until rounds were being deployed. Not the best time to learn your weapon doesn’t work.

Now, they’re made from thick, multi-layered fiber that doesn’t dent, and almost never breaks. In making a more reliable weapon, the firearms industry has simultaneously managed to lower price points on assault rifles with cheaper materials. What was once a $1,500 weapon costs less than $1,000 now, making assault rifles available to a broader purchaser base.

So what was Freedom Group referring to, when it mentioned “certain ammunition” that started getting snapped up from the market with the prospect of the Obama Administration directing regulation at weapons ownership? Assault rifles, naturally. When Freedom Group’s products started flying off the shelves and into gun aficionados’ hands, it wasn’t just the assault rifles that were going; it was bullets by the caseload and magazines to accompany them.