FORTUNE -- It has been nearly one year since the Sandy Hook massacre, which also means it's been nearly a year since private equity firm Cerberus Capital Management pledged to sell Freedom Group, a firearms and ammo company whose products include the Bushmaster AR-15 rifle used to kill 26 elementary school students and staff on that tragic day. The promise came in response to pressure from Cerberus investors like the California State Teachers Retirement System (CalSTRS), with investment bank Lazard (LAZ) hired to find a buyer. But, to date, Cerberus and its investors still own Freedom Group.
Late last night came news (first reported by The Financial Times) that Cerberus this week plans to offer LPs a voluntary way out of Freedom Group, via a third-party minority investment and new debt facility. Not hearing too many additional details yet, except that the new investment will come from an institutional money manager (i.e., not a family office) and that BoA Merrill Lynch (BAC) is organizing the creditor call.
It also is unclear if Cerberus will try to segregate management fees paid by investors who exit Freedom Group, so that they no longer are indirectly paying to oversee and manage the asset.
In the meantime, and obvious question: Why hasn't Cerberus sold Freedom Group yet? Not surprisingly, it is a complicated answer. Here are five major factors:
Cerberus created the single largest gun manufacturer in America, thus making it too expensive for smaller makers – like Smith & Wesson (SWHC) or Sturm Ruger (RGR) – to buy in its entirety (same . Smith & Wesson, for example, has a market cap just barely above Freedom Group's debt, let alone its equity value. Ammo maker Alliant Techsystems Inc. (ATK) is large enough, but its gunmaker acquisitions have mostly been for smaller, niche players. Foreign interest is said to have been muted by possible regulatory objections (particularly given all of Freedom Group's military and homeland security contracts).
The absence of strategic buyer would typically leave private equity interest, except that the limited universe of firms that can buy such a large asset is the same universe that raises money from public pensions like CalSTRS. In other words, they can't buy for the same reason Cerberus needs to sell. Many of those investors also are large shareholders in investment banks and other lenders, thus making it difficult to find groups to underwrite a leveraged buyout.
Cerberus has effectively returned its principal on Freedom Group via dividend recaps, so the sale question was largely about level of profit. And, in short, Cerberus wanted a lot of it. The firm told prospective buyers that it was looking at multiples of late 2012/early 2013 sales (i.e., post-Obama reelection and post-Sandy Hook, when gun sales and profits went through the roof), rather than of 2011 or early 2012 sales (when business was softer, after a brief boom that followed President Obama's original election). Freedom's EBITDA basically doubled during that time period, and few buyers wanted in at the market top – particularly given the sector's known volatility.
One theory early on was that someone like Smith & Wesson would try to buy one or two pieces of Freedom Group, such as Remington. One problem with that, however, is that Freedom is manufacturing multiple lines out of many the same factories. So to pull out one line would be logistically difficult.
When Cerberus decided to sell, it was noted that firm founder Steven Feinberg's father lives in Newtown. Discussed less is that Feinberg is a known gun enthusiast who really loves the business. That's why he proposed buying the company himself over the summer, although such a deal would have been fraught with way too many allegations of self-dealing.
Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com
LACERS excludes private equity from possible firearms investment policy.
FORTUNE -- The Los Angeles City Employees' Retirement System's board this week recommended that its staff draft a firearms investment policy, following divestiture requests from a city councilwoman and Mayor Villaraigosa.
But it specifically excluded private equity investments from the potential policy, arguing that such requirements could cause LACERS to be banned from certain private equity funds (as first spotted by Bloomberg). The board MOREDan Primack - Mar 29, 2013 12:13 PM ET
Liability insurance might be touted as a magic bullet to reduce gun deaths, but it's unlikely to make a big difference.
FORTUNE -- U.S. insurers have helped discourage smoking and have even made driving safer, but can the industry also make America a less violent place?
It's a tall order that would ask insurers to change the way they do business, but a handful of state lawmakers think so. Since December's tragic MORENin-Hai Tseng, Writer - Feb 21, 2013 10:59 AM ET
One of President Obama's Wall Street supporters is doing business with one of his loudest antagonists.
FORTUNE -- The National Rifle Association this week released a video ad accusing President Obama of being an elitist hypocrite, for opposing armed guards at school when his daughters have such protection.
Before continuing, two points of order:
1. Obama actually issued an executive order yesterday that would "provide incentives for schools to hire school resource officers" MOREDan Primack - Jan 17, 2013 3:21 PM ET
California teachers pension plans to divest of certain firearms makers.
FORTUNE -- The California State Teachers' Retirement System (CalSTRS) board yesterday voted unanimously to divest itself of investments in makers of firearms and ammunition that are illegal to purchase or own in the state of California. This includes those who produce assault rifles, "Saturday night specials" and/or high-capacity magazines. The divestiture option also was endorsed by CalSTRS chief investment officer Chris Ailman, MOREDan Primack - Jan 10, 2013 11:39 AM ET
Private equity's firearms interests go far beyond Cerberus and Freedom Group.
FORTUNE -- Last week another lunatic used a Bushmaster .223 rifle to murder multiple people. This time the victims were firefighters responding to a call in Webster, New York. Guns may not cause massacres, but people who massacre seem to favor the same type of "gun."
We previously reported about how Cerberus Capital Management plans to divest the parent company of Bushmaster MOREDan Primack - Dec 31, 2012 11:27 AM ET
Bushmaster rifle owner decides to sell the company.
FORTUNE -- Private equity firm Cerberus Capital Management announced early this morning that it plans to sell Freedom Group, a firearms conglomerate that produced the .223 Bushmaster rifle used in last week's elementary school massacre.
Here is the firm's statement, in full:
We were shocked and deeply saddened by the events that took place at the Sandy Hook Elementary School in Newtown, CT on December 14, 2012. We MOREDan Primack - Dec 18, 2012 6:30 AM ET
One way to reduce mass shootings is for big institutions to stop funding the assault weapon manufacturers.
FORTUNE -- Do you know who owns more than a 6% stake in the maker of .223 Bushmaster rifles, like the one used last Friday to murder 20 first graders and seven adults in Newtown, Connecticut? California public schoolteachers.
The company in question is Freedom Group, a privately-held firearms conglomerate formed by private equity and MOREDan Primack - Dec 17, 2012 2:32 PM ET
|Homeless college students seek shelter during breaks|
|Five things you didn't know about Bernie Madoff's epic scam|
|Don't fight it. Bitcoin has a bright future|
|Snowden docs had NYTimes exec fearing for his life|
|JPMorgan patents Bitcoin-like payment system|