WOOD Flash – Ceska zbrojovka Group: Colt M&A truly transformational, but risky
On 11 February, Ceska zbrojovka Group (CZG) announced its 100% acquisition of Colt Manufacturing for USD 222m. The acquisition of Colt is the largest for CZG, by far, and accelerates the company’s plan for the further penetration of the US small firearms market significantly. Furthermore, the deal immediately adds production capacity and presence in the North American M&LE market (c.70% of Colt’s sales in 2020). On the 2020E EV/EBITDA multiples, the deal was priced at 4.4x, implying a c.50% discount vs. CZG’s multiple (on our numbers). Colt adds 89/83% to CZG’s 2020E sales/EBITDA (based on its mid-point guidance) and the company is guiding for a combined sales CAGR of 17% in 2020-25E (vs. 9%, on our numbers, for CZG in 2020-24E). As risks, we highlight Colt’s historical financial issues (bankruptcies in 1992 and 2015), integration risks (Colt’s labour union sued the company in 2018 for outsourcing some production activities), and tightening gun regulations (especially for the AR-15 market).
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