December 17, 2018 / 12:00 PM / a month ago

INSIGHT-Small assault-style rifle firms thriving under activists' radar

    By Ross Kerber and Tim McLaughlin
    BOSTON, Dec 17 (Reuters) - A decade ago, Kentucky's Anderson
Manufacturing was a small machine shop that didn't make
firearms.
    By 2016, it was making more rifles than Smith & Wesson,
according to the latest available data from the U.S. Bureau of
Alcohol, Tobacco, Firearms and Explosives (ATF). Anderson's big
seller: assault-style rifles that cost up to $2,100 and require
no lubrication. Anderson says it made nearly 454,000 rifles that
year, or about 57,000 more than Smith & Wesson.
    Anderson is the leader among a cluster of small, private
companies that are taking market share from America’s biggest
gun makers. They are doing so with catchy marketing or weapons
that have, for example, more knockdown power for hunting wild
pigs.
    Some rifles made by companies such as Patriot Ordnance
Factory and Daniel Defense fire larger .308-caliber rounds
instead of the .223-caliber rounds more commonly used in AR-15s.
Another firm, Kel-Tec CNC Industries Inc, makes the hot-selling
Sub-2000 rifle - which folds up small enough to fit into a
backpack. It costs $500 and fires popular 9mm handgun
ammunition. 
    "It’s easy to conceal in some sort of bag that is not
screaming, ‘Gun,'” said Cape Gun Works owner Toby Leary in
Hyannis, Massachusetts. “People like it for the discreetness."
    By contrast, America’s leading gun makers have struggled
over the past two years, with the three biggest seeing their
rifle market share slip to 44 percent in 2016 from 57 percent in
2011, according to ATF data. Over the same period, a cluster of
about 30 small companies combined for 51 percent of overall
rifle production, up from 37 percent. 
 Rifle Segment         Rifles made - 2016    Rifles made - 2011
 breakdown             (market share)        (market share)
 Small Companies       2,158,212 (51%)       854,771 (37%)
 (10,000+ rifles)                            
 Big Three             1,868,644 (44%)       1,328,902 (57%)
 Rest of market        212,479 (5%)          134,415 (6%)
 U.S. Total            4,239,335             2,318,088
    Top rifle maker Remington Outdoor Company emerged from
bankruptcy in May. Net firearms sales at Sturm Ruger & Company
Inc fell 7 percent during the nine-month period that
ended Sept. 30. And American Outdoor Brands Corp,
parent of Smith & Wesson, saw shipments of long guns, including
rifles, fall 32 percent in fiscal 2018, compared to the previous
year. 
    Gun sales surged to historic highs during the Obama
administration amid fears of more restrictive gun laws with a
Democrat in the White House. But since Republican Donald Trump
became president gun sales have fallen. The adjusted number of
criminal background checks, a proxy for guns sales, fell 10
percent in November from the year-ago period, according to the
FBI.
    The biggest three companies - Remington, Ruger and American
Outdoor - did not comment for this report, nor did the smaller
manufacturers Anderson, Patriot, Daniel and Kel-tec.
    Smaller players largely have sidestepped scrutiny about
their products or their financing because activists have mostly
focused on pressuring big retailers and gun makers with publicly
traded stock or debt held by mutual funds. Excluding the big
three, there were 28 companies that made 10,000 or more rifles
in 2016, up from 20 companies in 2011, according to ATF data.
    “The number of manufacturers was shocking to me,” said
Christopher Ailman, chief investment officer for the $219
billion California State Teachers’ Retirement system, which this
fall started a new effort to press gun makers and retailers on
safety.
    Surging sales of assault-style rifles under the Obama
administration paved the way for smaller gun makers to enter the
market. Larger manufacturers have in recent years had trouble
meeting a spike in demand for rifles like the semi-automatic
AR-15, leaving room for Anderson and others, said Stefanie
Zanders, chief operating officer of gun distributor Zanders
Sporting Goods in Illinois.
    "The ARs just took off, and some manufacturers couldn't keep
up," she said in a telephone interview.
    Overall, rifles accounted for 2.7 percent of the weapons
used on U.S. murder victims in 2017, FBI data show. But
assault-style rifles are at the center of America's gun-policy
debate because they have been used in deadly mass shootings,
including last year's sniper attack that killed 58 at a Las
Vegas music festival.
    The shooter used weapons made by small and large companies
when he fired more than 1,000 rounds into a crowded music
festival. Those included ones manufactured by Daniel Defense, FN
America LLC, LWRC International, Patriot Ordnance Factory and
Sturm Ruger, according to a report from the Las Vegas
Metropolitan Police Department.
    
    FREE-FLOWING CAPITAL
    This year, lenders including Citigroup Inc and Bank of
America Corp outlined new restrictions on lending to gun makers
and retailers after a gunman killed 17 people at Marjory
Stoneman Douglas High School in Parkland, Florida, with an
assault-style rifle.
    Also in the wake of that shooting, top fund firms BlackRock
Inc and Vanguard Group backed a shareholder resolution calling
for Sturm Ruger to report on the safety of its products.

    But small gun makers have plenty of options for capital
outside of public markets. Smaller rifle makers get financing
from community banks, credit unions and makers of metal-cutting
machines, according to a Reuters analysis of firearms financial
disclosures filed with more than a dozen secretaries of state.
    "We're not going to starve any of these companies of capital
because there's always someone" willing to lend gun makers
money, said John Streur, chief executive of Calvert Research and
Management. The Calvert unit, part of Eaton Vance Corp, has
pressed big retailers to restrict gun sales.
    Windham Weaponry in Maine received an $8 million revolving
credit line and a $3 million term loan last year from Bar Harbor
Bank & Trust, according to local real estate records. The
company and the bank did not respond to requests for comment.
    Anderson Manufacturing received financing in 2013 from The
Bank of Kentucky as its rifle sales began to surge, according to
financing reports filed with the Kentucky secretary of state.
The bank has since been acquired by North Carolina-based BB&T
Corp, which did not respond to a request for comment.
    At the Cape Gun Works in Massachusetts, owners Leary and
Brendon Bricklin said they borrowed several million dollars from
Wisconsin-based First Bank Financial Centre to create what is
now a 20,000-square-foot building that includes a retail store
and firing range.
    They said area banks initially were reluctant to get
involved with their firearms business. But some have expressed
new interest now that they are up and running.
    “Nature abhors a vacuum,” Leary said.
    
    RIFLES WITH ‘PERSONALITY’
    Anderson and its smaller peers are winning customers with
innovation and marketing messages that can be patriotic and
provocative.
    "People buy their guns because they want to buy some
personality in it," said Angela Register, co-owner of Spike's
Tactical LLC of Apopka, Florida. Her company is known for its
Crusader rifle and details like a safety setting marked "Full
Libturd," an insult aimed at political liberals.
    Some of the other upstarts have focused on more powerful
guns like the .450 caliber "Thumper" from Windham Weaponry,
founded by Richard Dyke, best known as the creator of the
Bushmaster assault-style rifle.
    FN America LLC, a unit of Belgium-based FN Herstal SA, sells
an assault-style rifle costing $8,499 that comes with a bipod
and the ability to fire a belt-fed magazine with 200 rounds.
    Not all the marketing highlights brute force. This year,
CMMG Inc, based in Boonville, Missouri, released a special
edition pink assault-style rifle for breast cancer awareness.
Rifles made by Phoenix-based Patriot Ordnance Factory come with
American flags and "God Bless America" on their ejection port
covers.
    Also helping smaller gun makers is how AR-15 parts can be
fitted to create firearms for a myriad of uses, whether it be
for target shooting or hunting, said Glen Zediker, a gun
enthusiast and author of “America’s Gun: The Practical AR15.”
    “I call it ‘Mr. Potato Head’: choosing and assembling
specialized components from even smaller shops to create a truly
custom gun,” he said.
    Chris Monhof, director of shooting operations for Jager Pro
Hog Control Systems in Fortson, Georgia, said some smaller rifle
makers have a reputation for slightly better quality than
mainstream companies.
    “It might be the difference between having a 50-cent spring
versus a 25-cent spring,” Monhof said. “The smaller companies
will do a lot of customization, too, for people who say, ‘I want
to look like a special ops guy.’”

 (Reporting by Ross Kerber and Tim McLaughlin
Editing by Neal Templin and Brian Thevenot)
  
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