Smith & Wesson (SWHC) Closes Acquisition Of Crimson Trace

Smith & Wesson Holding Corporation (NASDAQ:SWHC) has closed the acquisition of Crimson Trace Corporation, the industry leader in laser sighting systems and tactical lighting for firearms. Both the companies signed a definitive agreement for the deal this July.

Shares of Smith & Wesson were up 2.05% to $29.53 at the close of yesterday’s trading session.

The Purchase Consideration

The transaction was valued at $95.0 million, depending on post-closing adjustments. Smith & Wesson purchased all of the outstanding stock of Crimson Trace utilizing available cash on hand.

Smith & Wesson purchased Crimson Trace from Crimson Trace Holdings, LLC, which is owned by private equity firms Peninsula Capital Partners, LLC and VergePointe Capital, LLC; Lewis Danielson, the founder and Chairman of the Board of Crimson Trace; a small group of minority members; and certain members of management.

Post-Acquisition Plans

Crimson Trace will function as Smith & Wesson's newly created Electro-Optics Division. The division will, however, continue to be operated by Crimson Trace’s management team and workforce in a 50,000-square foot facility in Wilsonville, OR.

Lane Tobiassen, who joined Crimson Trace in 2005, will be the president of the Electro-Optics Division and will report directly to James Debney, Smith & Wesson’s President and Chief Executive Officer.

Effects on Financials

Jeffrey D. Buchanan, the Executive Vice President and Chief Financial Officer of Smith & Wesson, believes that post closure, the acquisition will be accretive to Smith & Wesson's earnings per share in fiscal 2017. However, it will not have any impact on Smith & Wesson's operational and financial results for first-quarter fiscal 2017 ended Jul 31, 2016.

As of the date of signing of the agreement, Crimson Trace's trailing 12-month revenue was around $44.0 million, of which roughly 25% was contributed by Smith & Wesson and would not be included in its consolidated revenue. The purchase price shows an estimated multiple of about 5.9 of the trailing 12-month adjusted EBITDAS of Crimson Trace.

About Crimson Trace

Crimson Trace is a 22-year-old company that has been supplying laser sighting systems to Smith & Wesson and other consumers, military units, and law enforcement officers worldwide. The company, which offers over 225 products, is widely known as the world's leading brand of laser sights for firearms.

Crimson Trace has generated a 10-year compound annual revenue growth rate of above 10%. Moreover, the company has collected $44 million in revenue during the past 12 months. Its product development team boasts a track record of launching high-quality, innovative laser sighting products.

Acquisition Strategy

According to James Debney, the acquisition of Crimson Trace marks a step toward Smith & Wesson’s strategy of becoming a leader in the fields of shooting, hunting and rugged outdoor sports. Its suite of superior laser sighting products makes Crimson Trace the prudent choice for Smith & Wesson’s new Electro-Optics Division. The combination of Crimson Trace will provide a concrete structure that supports both organic and inorganic growth.

Smith & Wesson is focusing on acquisitions to align its businesses more efficiently. Recently, the company’s accessories unit, Battenfield Technologies, acquired knife maker Taylor Brands for $85.0 million in cash. The acquisition will help the Smith & Wesson expand its accessories division.

Smith & Wesson will discuss further details about these acquisitions during its fiscal first-quarter earnings conference call, which is scheduled for Sep 1.

Peer Releases

TASER International Inc.’s (NASDAQ:TASR) second-quarter 2016 earnings came in at 7 cents per share, beating the Zacks Consensus Estimate of 3 cents by 133.3%. This Scottsdale, AZ-based company’s earnings were, however, down 36.4% year over year. The downside was mainly due to higher operating expenses.

Sturm, Ruger & Company’s (NYSE:RGR) second-quarter 2016 earnings came in at $1.22 per share, up 34% from 91 cents in the year-ago quarter. The upside was mainly attributable to higher sales.

Vista Outdoor Inc.’s (NYSE:VSTO) first-quarter fiscal 2017 earnings came in at 48 cents per share, missing the Zacks Consensus Estimate of 68 cents by 29.4%. The company’s earnings were also down 12.5% year over year.

Zacks Rank

Smith & Wesson currently sports a Zacks Rank #1 (Strong Buy).

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