What Made Colt’s Going Bankrupt was Bad Portfolio Products and Weak Financial Planning
Although cowboys have become extinct in modern days, 19th century will never be forgotten of cowboys and gun slingers. During those days, people living in Wild West carried important equipment and you may not feel surprised if it was a pistol. Samuel Colt was the inventor of world famous Colt revolver. In 1836 Samuel Colt a Connecticut born man patented Colt revolver which had the unique mechanism to fire multiple times without reloading. He started a gun manufacturing company which later on became a pioneer in making all wide variety of guns. Colt guns were the preferred choice by law agencies, army and even gun enthusiasts. And that is why in June 2015 it became breaking headlines in all news channels when this iconic gun manufacturing company filed for bankruptcy.
In its filing of chapter 11 the company revealed that it is not able to pay $500 million to its creditors, and several other million dollars to the senior bond holders. So what is the reason for this iconic gun manufacturing company to default and go bankrupt? According to experts it was a mix bag of poor management skill, bad portfolio of products and careless financial management.
Causes of Colt’s Bankruptcy:
The main cause of colt’s going out of business was due to bad products in their portfolio.
Colt used to supply its famous M4 rifles and M16 guns to the US army for decades. M16 were primarily used by American soldiers in Vietnam War and M4 rifles in Iraq and Afghanistan war. These were the times when the company made huge profits and its bottom line became extremely strong. However, the fortunes of Colt started declining as its design patent for various guns expired. It faced serious competition from several other gun manufacturers with quantifying discounts in 1980’s and 90’s. For example the company lost huge order from law enforcement agencies in favor of Glock’s machine. The agency preferred Glock’s firearms because they were light, cheap than the products of Colt. Complaints also occurred about jamming of Colt guns. In another drawn-out business battle, Colt lost multimillion dollar contract of providing M4 rifles to the pentagon. This contract was awarded to a firearm Belgian company called F.N. Herstal in 2013. Colt rifle lost its credibility because soldiers who relied on it found the gun malfunctioning in dusty and dirty atmosphere of Iraq and Afghanistan.
Second biggest reason was carelessness in the financial planning.
The woes of Colt products are not the only reason for losing its profitability. The restructuring of business model by its latest owner a private equity firm also complicated the financial equations of Colt. Immediately after the takeover, Colt was divided into two arms; the one which catered the defense operations and another for consumer wing. The company did not pay much attention to the consumer arm when it was very crucial. It did not have a better distributing chain as compared to its rivals such as Gloak and Smith & Wesson. The sales of Colt’s competitors rose sharply meanwhile. Although the company started making loss, the private equity firm company who owned Colt, awarded bonuses and various remunerations to its officers. All these factors seriously contributed in rise of Colt debt.
Latest Update and Emergence from Chapter 11
In 2016, colt announced to its key stakeholders about the completion of their restructuring process. They are thus emerging out from bankruptcy. The company has reduced its debt significantly and is able to put its financial trouble in the past. In Jan 13 2016 the company has exited from bankruptcy. It has considerably reduced its debt by $200 million. In fact the company now has good amount of cash flow. Colt now is concentrating more on consumer sales which it expects to cross $11 billion for overall firearm industry. This will also increase the sales and bottom line profitability for colts. In fact the growth is now much more balanced which includes both commercial as well as government defense contracts.