Few Aspects Of Clarus' Sales Of Precision Sport Segment Seems Odd, Says Analyst

Raymond James analyst Joseph Altobello reiterated a Market Perform rating on the shares of Clarus Corp CLAR. 

Clarus announced Friday that it has entered into a definitive agreement to sell its Precision Sport Segment, including its Sierra and Barnes bullet and ammunition businesses, to a U.S.-based non-strategic buyer for $175 million in cash.

CLAR acquired Sierra Bullets in August 2017 for $79 million and Barnes Bullets in October 2020 for $30.5 million.

Together they comprise the company's Precision Sport segment, far and away its most profitable as the analyst forecast it will generate $26.6 million of adjusted EBITDA in 2023, or more than 80% of the analyst's total estimate for CLAR of $33.0 million, with a margin of more than 30%.

The analyst notes it odd that there was no conference call scheduled to discuss the details, despite the fact that CLAR is selling businesses that represent the majority of its profitability and the buyer is an unknown entity, only mentioned as a "U.S.-based non-strategic buyer that is not affiliated with the Company or any of its officers or members of its board of directors."

The $175 million acquisition price values the segment at 6.8x the analyst's current 2024 adj. EBITDA estimate and compares favorably to the ~5x EBITDA that private equity firm The Czechoslovak Group is paying for Vista Outdoor Inc's VSTO Sporting Products segment.

However, this implies estimated pro forma 2024 adj. EBITDA for the remaining businesses of the company of just $12.3 million and an EV/EBITDA multiple of 16.5x which strikes the analyst as a bit rich. 

That said, the removal of Precision Sport and the remaining brands' strong balance sheet would perhaps make it more palatable as an acquisition target itself, writes the analyst.

Price Action: CLAR shares are trading lower by 0.65% at $6.85 on the last check Tuesday.