In an industry where firms tend to give themselves bland, often vaguely geographic names – Bridgewater, Blackstone, Riverstone, Pine River – Stephen Feinberg has taken a different tack. His group, Cerberus Capital Management, is named for the horrifying three-headed cur from hell. Yet whatever connotations it might have for investors, the image perfectly embodies the types of synergies that only a private equity great can see. Why have three separate dogs guarding Hades when you can form a streamlined monster on a single skeleton, cutting out significant digestive and circulatory overhead?
As the New York Times reports, Feinberg wants to bring that sort of mojo to the intelligence community, which has become a thorn in the side of the Trump administration with its pesky Russia investigations and constant leaks. To take care of that problem the president reportedly wants to explore a spy agency overhaul.
At his press conference Thursday, Trump downplayed the story. “I hope we'll be able to straighten that out without using anybody else,” Trump said. “He's offered his services and it's something we may take advantage of, but I don't think we'll need that at all because of the fact that, you know, I think that we're going to be able to straighten it out very easily on its own.”
Feinberg-led or not, the “broad review of American intelligence agencies…could curtail their independence and reduce the flow of information that contradicts the president’s worldview,” the NYT wrote. Would Feinberg be the right guy to make the intelligence community simultaneously more manageable and less effective? Judging from his experience consolidating the gun industry, the answer is yes.
Our tale begins in 2005, when Feinberg took a weekend trip down to the Moyock, North Carolina, training site of military contractor Blackwater to shoot some guns with a decorated Iraq war vet. It was to be the opening salvo in a quixotic quest by Feinberg to roll up Remington, Bushmaster and 16 other firearms manufacturers in what he hoped would be the Berkshire Hathaway of things that go boom and kill people. He called it Freedom Group.
But as New York Magazine reported shortly after the election, there were a few snafus in the process. Cerberus brought in executive Robert Nardelli to run the conglomerate.
Nardelli’s tenure at Freedom Group was disastrous. He knew little about guns; his expertise was in high-efficiency manufacturing and building economies of scale. He alienated many of Freedom’s top managers and accelerated a program of manufacturing consolidation that centralized production in Remington’s main facility in Ilion, New York. This push for efficiency meant laying off skilled workers, introducing manufacturing defects into Freedom Group products. “Since the announced closure of the North Haven factory, the quality of Marlin lever-actions has gone completely to hell,” wrote one gun blogger. “Our rifles were neither fit nor finished, nor in any condition to be offered for sale.” Gun magazines and internet forums were filled with complaints, and after Cerberus bought it, Remington was forced to issue multiple recalls, for both guns and ammunition. A number of customers sued the manufacturer, claiming their guns had gone off without the trigger being pulled, prompting a class-action lawsuit.
Then in 2012 Sandy Hook happened and NRA members all over the country went out and splurged. The profits from the panic-buying made it seem a perfect time to put the company on the market:
Feinberg wanted over a billion dollars, but he couldn’t find a taker at that price. The original idea, of an IPO, was out of the question: No reputable investment bank would underwrite it, nor even take the M&A fees associated with a private deal. Another option would have been to sell off the most controversial product lines, like Bushmaster, but the centralization of manufacturing made that impossible, too.
Then the boom ended and things got ugly:
The boom was short-lived: The 2014 rollout of a new pistol, the Remington R51, was a disaster — an unreliable shooter with serious production flaws, the R51 was the Galaxy Note of the firearms industry, and Remington ended up recalling the guns. Having once sought a billion dollars for its investment, Freedom was, according to insiders, now internally valued at just $400 million.
In 2015 Cerberus gave up on a profitable exit and let investors cash out of Freedom Group investments, placing the company into a special vehicle separate from Cerberus. A private equity success? It was not. But as a dress rehearsal for an attempt to upend the intelligence establishment, the Freedom Group saga holds promise for Trump.