Global Digital Solutions, Inc., a little-known technology company based in Palm Beach, FL, has reportedly made an unsolicited offer to purchase Freedom Group, Inc., also known as Remington Outdoor Company, Inc., for $1.082 billion in cash and shares of GDSI's common stock.
The offer was included in an 8-K filing with the Securities and Exchange Commission. GDS noted that Freedom has estimated that its net sales for 2013 will be in the range of $1.250 billion to $1.275 billion and that its adjusted EBITDA will be in the range of $235 million to $240 million.
In a press release, Richard J. Sullivan, GDSI's Chairman and CEO, offered several reasons for optimism regarding the proposed acquisitions discussed in the Form 8-K filing and the company's overall strategy for profitable growth going forward:
“The GDSI team is extremely excited and confident about all three of these proposed acquisitions. There are powerful synergies between Freedom and the two other companies that will fuel our future growth along with the transformation of the cyber arms industry. Cyber-based technologies, coupled with enhanced digital product development and distribution, will be key factors in achieving results that could match — and probably even exceed — what we were able to produce at Digital Angel Corp and Applied Digital Solutions (“Applied”). At Applied, we saw our market capitalization reach $2.5 billion, roughly five times revenue and nearly 25 times EBITDA.
“Results like these truly represent the baseline of our expectations going forward. As discussed previously, we plan to follow a similar acquisition strategy to the one we successfully pursued at Applied. Under my leadership at Applied, the GDSI team successfully executed a private-to-public company roll-up totaling some 42 acquisitions and growing annual revenue from $1 million to $350 million over five years.
“This model, which takes advantage of market trends, technological advances and industry consolidations to fuel profitable growth, presents a value proposition that is perfectly suited to the military armament industry, an industry that is heavily fragmented and evolving rapidly toward a RFID/WiFi-enabled technology platform. In this dynamic environment, we see enormous opportunity to consolidate this market with a program of targeted acquisitions, including the proposed Freedom transaction. Technological convergence is the future in the cyber/smart arms arena and we're eager to leverage our proven history of success by helping Freedom and others navigate the transition from analog to digital.
“Our team plans to drive unprecedented consolidation and convergence in the cyber arms arena at least in part through the acquisition strategy outlined in our Form 8-K filing and elsewhere. We'll also do this by leveraging technologies like GDSI Gatekeeper, which we announced on January 23, 2014. Gatekeeper represents a revolutionary suite of technology-enhanced services that offer personalized, digital small arms safety and security solutions in commercial and military-related markets.
“The bottom line is: Our excitement and confidence derive from the fact that we've done this before and we see enormous potential that we'll be able to do it again.”
As described in the Form 8-K, GDSI has also entered into non-binding letters of intent relating to the proposed acquisitions of two privately held, U.S.-based companies. One involves a technology and development services firm with annual revenue of approximately $25 million. The other is a military and law enforcement supply and distribution company with annual revenue of approximately $30 million.
All three proposed acquisitions are subject to completion of due diligence, completion of satisfactory acquisition agreements and other customary conditions, including financing.
According to the 8K, GDSI's initial proposal to acquire Freedom, dated Jan. 27, elicited no response from the Cerberus-owned company, leading to the renewed offer.
Given the GDSI's lack of any holdings in the firearms, many reports were skeptical that a deal was feasible.
Christian Lowe at the Grand View Outdoors website obtained an internal
memo Remington sent to its employees, dismissing the potential sale of
Freedom Group:
“A
small, unknown investment entity publicly announced its desire to
acquire the Remington Outdoor Company,” says the memo, which was written
by company CEO George Kollitides and obtained by Grand View Outdoors.
“If this wasn’t disruptive to our employees and customers, we would not
acknowledge the news and recognize it for what it is: a publicity stunt
from an agenda-driven group with no credible financing options.”
Freedom Group is owned by the private equity firm Cerberus Capital, which has tried for the past year to unload its gun holding following the the December 2012 Newtown elementary school massacre. Freedom's brands include Remington, Bushmaster, DPMS/Panther Arms, Marlin, Para USA, and Barnes Bullets.
