Smith & Wesson owner American Outdoor Brands announced plans for a spin-off that will separate its gun-making business from brands that sell knives, rifle scopes and other outdoor gear.
The company has sought to lessen its exposure to the boom-and-bust cycle of gun sales by expanding its footprint in the accessory market, but acknowledged “changes in the political climate” have contributed to its decision to split its assets.
American Outdoor Brands said on Wednesday it intends to spin off its outdoor products and accessories unit to create two independent and publicly traded companies, with the other comprised of Smith & Wesson, the 167-year-old firearms maker, and related businesses.
The spun-off unit will include companies such as Crimson Trace, a purveyor of laser gun sights, and knife maker Bubba Blade, that represented part of its efforts to reduce its reliance on revenue from firearm sales. The strategy was punctuated by the company’s decision in late 2016 to change its corporate name from Smith & Wesson to American Outdoor Brands.
The spin-off follows a strategic review that included an evaluation of the Springfield, Massachusetts-based group’s growth prospects, business operations in the current market, and credit and insurance factors.
Barry Monheit, the company’s chairman, said in a statement that separating the businesses “will allow each company to better align its strategic objectives with its capital allocation priorities”.
“There have been significant changes in the political climate as well as the economic, investing, and insurance markets since we embarked upon what we believe have been our very successful diversification efforts,” Mr Monheit said.
The spin-off will be conducted as a tax-free dividend to shareholders, who will own 100 per cent of each company. It is expected to be completed in the second half of 2020.
The new Smith & Wesson Brands will manufacture rifles and handguns under the namesake brand and Thompson/Center Arms, in addition to making Gemtech suppressors, generating an estimated $450m to $500m in revenue during its first 12 months as a standalone company. It will be led by Mark Smith, current president of the manufacturing services division.
American Outdoor Brands’ current chief executive, James Debney, is slated to become head of the spun-off company of the same name. Revenue is projected to be $200m to $210m in the first year.
Firearm manufacturers have struggled with weaker consumer sales in recent years. Retailers stocked up on guns in 2016, anticipating a flood of demand during the US presidential election season. But sales cooled off after Donald Trump’s victory lessened gun owners’ concerns over potential new restrictions on purchases.
The industry has also faced opposition following mass shootings in the US. Earlier this week, the Supreme Court declined to block a lawsuit brought by families of Sandy Hook victims against Remington, in a case that could broaden liabilities for gun companies.
Shares in American Outdoor Brands were up 3.9 per cent in after-hours trading, after rising 2.9 per cent during Wednesday’s session.