Behind Colt's bankruptcy: Financial engineering that backfired. Your thoughts?

2015-06-15T18:28:09-04:00

The gun company founded by Samuel Colt has flirted with financial disaster for much of its 179- year history. Now the storied West Hartford (Conn.) maker of rifles and pistols is heading into Chapter 11, in large part because of more than a decade of dubious financial engineering and accumulating debt.
Colt Defense, as the main part of the company is now known, filed for bankruptcy protection on Sunday while listing as much as $500 million in debt. Cooling demand for its civilian semiautomatic rifles and handguns, as well as delays in certain large U.S. government and foreign military orders, have exacerbated the company's finances. But the main reason the company hasn't weathered rocky market conditions since the winding down of the wars in Iraq and Afghanistan is that the New York financiers who control the company borrowed too much and paid themselves lavishly.

As I reported in a feature story last year, the private equity firm Sciens Capital and its affiliates loaded Colt with debt since the mid-2000s while taking cash out in the form of "distributions" and "advisory fees." Sciens remains the controlling owner of Colt Defense, according to a regulatory filing. An executive with Sciens did not immediately return a message seeking comment.

In 2009 and 2010, meanwhile, Colt somehow missed out on the "Obama surge," a run of strong civilian gun sales prompted by fears whipped up by the National Rifle Association that the Democratic president would stiffen federal gun control. The panic-based buying that lifted the small arms industry has now eased, making it even more difficult for Colt to move the military-style semiautomatic rifles it had hoped would be its salvation. "The industry's recent rapid growth is expected to slow over the next five years, increasing at a more modest average annual rate of 4.1 percent," according to the research firm.

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Behind Colt's bankruptcy: Financial engineering that backfired

(Bloomberg Business) -- The gun company founded by Samuel Colt has flirted with financial disaster for much of its 179- year history. Now the storied West...

Response by SFC Tyrone Almendarez made Jun 15 at 2015 6:35 PM

2015-06-15T18:35:04-04:00

Another example of American greed...A company who employed numerous people with families goes under because of greed. Let's keep believing on trickle down economics. I'm waiting for the rich guy to do the right thing.

Response by Sgt Aaron Kennedy, MS made Jun 15 at 2015 6:48 PM

2015-06-15T18:48:13-04:00

Colt has been trading on its name (brand) for far too long, without "product" to back it up.

From the dealer side, they were "impossible" to get, too high in price, and the quality didn't justify it, relative to others in the marketplace. This resulted in CONSTANT loss of market share.

It's great to have a well known name, but if you can't deliver an associated product, you can't generate profit, which is the sole reason to be a business.

Response by PO1 John Miller made Jun 15 at 2015 8:04 PM

2015-06-15T20:04:06-04:00

Well... Colt hasn't made a significant contribution to the market in a while so I'm not too surprised.

Response by SSG Roger Ayscue made Jun 15 at 2015 10:42 PM

2015-06-15T22:42:19-04:00

Colt has one major problem. In the early 2000s shifted toward more governmental and less and less civilian sales.
Colt stopped production of it's Very Popular revolver line. The Colt Python, Trooper Special, King Cobra and others were the top selling revolvers in their line. Even today, these revolvers would sell out as soon as they hit the shelves.

Colt also stopped listening to it's customers. IF you look at the Colt catalog this year, you will find NOTHING Original. Colt has not fielded anything that was new or revolutionary since ... Eugene Stoner was daft enough to sell them the patent on the AR15.

Colt did this to themselves. They can recover quickly if they began production of the Python, Cobra and trooper specials again, and price the guns that they do make to a level that the average gun owner can afford a Colt.

Response by SFC Mark Merino made Jun 16 at 2015 1:08 AM

2015-06-16T01:08:26-04:00

Eagerly awaiting the 2 for 1 sale.......

Response by MAJ Private RallyPoint Member made Jun 16 at 2015 1:15 AM

2015-06-16T01:15:22-04:00

LtCol Matthew Sutton and SSG Roger Ayscue are correct in pointing out that coming into the 21st Century, this once-great American company seemed to through all of it's eggs into it's Defense Contract business and turned it's back on the civilian market. Now, if the company no longer wished to meet the needs of the civilian market, that's a principled business decision. However, when Colt allowed the patent on it's lucrative AR-15 label to expire, that was an indicator that all was not well in the company that produced such classic firearms as Sam Colt's original 45 Peacemaker - "the gun that won the West"; the Colt 1911 45 ACP; and the M-16.

We know that Colt's controlling managers from Sciens Capital Management had been playing fast and loose with the Company's fortune's for most of the first decade of the new century, yet the article makes note of the fact that Colt was not positioned to exploit the initial surges of increased firearms sales following the election of President Obama in 2008. Whereas virtually every other manufacturer in the nation positioned itself to ride this wave that lasted nearly the duration of the President's entire first term, how is it Colt could totally miss the boat? Was it intentional? A review of campaign donations at http://www.opensecrets.org reveals that a significant number of employees at Sciens Capital management were contributors to the Obama Campaign. So, call me paranoid, I don't care, but, does it not seem logical that those who would share Obama's political views on firearms may not just take down an American firearms institution from within, take what they can from it, file for bankruptcy, and let the remains smolder on the ash heap of history? When it comes to Liberals with money, that's the point at which I cease believing in coincidences anymore. That's a little lesson Hillary has taught me. The timing just seems a little too neat and tidy to me...

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Response by SSgt Private RallyPoint Member made Jun 16 at 2015 9:40 AM

2015-06-16T09:40:00-04:00

I wonder if this is a way for them to escape high regulations on firearms production on the east coast. There had been rumor a few years back that they were looking to relocate somewhere in the midwest, like Missouri.

Response by SSG Roger Ayscue made Jun 16 at 2015 9:51 AM

2015-06-16T09:51:40-04:00

Like I said earlier, Colt has one major problem. In the early 2000s shifted toward more governmental and less and less civilian sales.
Colt stopped production of it's Very Popular revolver line. The Colt Python, Trooper Special, King Cobra and others were the top selling revolvers in their line. Even today, these revolvers would sell out as soon as they hit the shelves.

Colt also stopped listening to it's customers. IF you look at the Colt catalog this year, you will find NOTHING Original. Colt has not fielded anything that was new or revolutionary since ... Eugene Stoner was daft enough to sell them the patent on the AR15.

Colt did this to themselves. They can recover quickly if they began production of the Python, Cobra and trooper specials again, and price the guns that they do make to a level that the average gun owner can afford a Colt.

I sell Colts and can tell you, it was short sightedness on the part of Colt management that brought this about. For years Colt went on the assumption that People are happy to pay for the name, and many collectors will. But the shooting public discovered that there are much better guns out there and they do not have to pay for the name or the engraved "Hartford Horsey"

Response by Capt Richard I P. made Jun 16 at 2015 1:03 PM

2015-06-16T13:03:37-04:00

Innovate or die.

Response by CPT Bruce Rodgers made Jun 17 at 2015 9:35 AM

2015-06-17T09:35:09-04:00

That's a shame

Response by 1SG Private RallyPoint Member made Jun 17 at 2015 9:52 AM

2015-06-17T09:52:10-04:00

Sad day and also begs the question of what's next for a rifle? Something tells me it wont be a step up and we will end up with the ACU of carbines.

Response by Sgt David G Duchesneau made Jun 17 at 2015 10:03 AM

2015-06-17T10:03:41-04:00

WTF-Over! That really sucks!

Response by SrA Daniel Hunter made Jun 17 at 2015 10:12 AM

2015-06-17T10:12:39-04:00

That is the most hideous 1911 I have ever seen. While the bankruptcy is sad news, Colt will come back with a bang! They are not anticipating any disruption in production.

Response by CPT Jack Durish made Jun 17 at 2015 11:40 AM

2015-06-17T11:40:31-04:00

It seems that Colt became more adept at feeding at the public trough rather than producing firearms that buyers were willing to pay for. What better evidence of the truth of this statement than the fact that they fold after losing their government contracts?

I worked for a time for an American corporation that had an exclusive arrangement to represent a Japanese corporation in America. They didn't have to produce or package the Japanese product, or even warehouse or ship it. They simply ran its advertising campaign, maintained a commissioned sales force, and took orders that the Japanese corporation filled.

Such a deal! No risk. No investment. All profit. And profit it did.

The money poured in.

And they spent it producing, packaging, warehousing, shipping, and selling their own product lines. Sadly, they overspent on their own products. This fact became painfully clear when they lost the sweetheart deal with the Japanese, and went bankrupt.

It seems to me that those who deal with the government being overpaid for the goods and services that they provide, also lose the ability to manage a profitable business, and they deserve to go bankrupt.

Response by SGT William Howell made Jun 17 at 2015 12:24 PM

2015-06-17T12:24:15-04:00

I am in the firearms manufacturing business and I am going to let you in on a little secret. COLT MAKES NOTHING. Repeat NOTHING! They are a building where a bunch of suits and ties suck the life blood out of the brand. They farm out everything. If you win a contract to make Colt's product they will demand an office for a QC department. That is it. They have known they were going out of business yet they chose to put on the persona of business as usual.

Colt has been doing it for years. That Colt upper and lower receiver you carried in Iraq. Made by Anderson Arms. It was just smoke and mirrors for the last 15 years.

Good news is. Colts always go up in value. If they really do go under, that Python you got in the safe is going to be worth a mint!

Response by SGM Private RallyPoint Member made Jun 17 at 2015 12:27 PM

2015-06-17T12:27:36-04:00

Sad to see any American business bit the dust. Colt made good weapons.

Response by SPC Eric Cunningham made Jun 17 at 2015 12:28 PM

2015-06-17T12:28:34-04:00

Colt used to make some great guns. The single action army and Python were the standard bearers for the single and double action revolvers and we all know the M1911. But they refused to keep up with the times on the civilian side. They dropped the really fine made handguns like the Python due to cost, but everything else they offered was more expensive than their competitors for similar quality. As great a gun as the 1911 is, they refused to invest in the capacity to make relatively cheap polymer high cap pistols - unlike S&W who are now seeing fairly robust police sales by competing with Glock.

That said, I will be sad to see the icon fall.

Response by SPC John Decker made Jun 17 at 2015 12:46 PM

2015-06-17T12:46:38-04:00

The fact that the U.S. Military is using foreign arms manufacturers is, in my opinion, a political quid pro quo for something. I understand that there were terms laid out in the treaties that were negotiated at the end of WW II that allowed for these kinds of things to happen.

Response by WO1 Private RallyPoint Member made Jun 17 at 2015 8:39 PM

2015-06-17T20:39:48-04:00

I know there are those people that think it's wrong for the U.S government to be purchasing arms from a foreign arms maker. But when the U.S made weapons manufacturer thats been supplying the military for many decades fails to produce a product that can compete with other arms makers then there needs to be a change. FN Herstal won the contract because they make awesome fire arms. In fact I wish they would dump the m9 for the FNX-9, 40, or 45.

Response by CW3 Private RallyPoint Member made Jun 18 at 2015 1:40 AM

2015-06-18T01:40:41-04:00

Maybe if the FOBbits and REMFs actually took care of their weapons and cleaned them as they should it wouldn't jam.

Plus showing up to a range and having someone dump CLP all over my weapon to "prevent jamming" even before I fire it does nothing but allow more for dust and grime to stick to.

weapons are only as good as their operator.

Response by MSgt Private RallyPoint Member made Jun 18 at 2015 10:37 AM

2015-06-18T10:37:55-04:00

They decided a long time ago to no longer be relevent in their industry.