Jan Lopatka and Michael Kahn
PRAGUE (Reuters) – Michal Strnad, who took over CSG, the family defense business, a decade ago, is close to buying U.S. ammunition maker Kinetic Group in a move that would transform a company that started out buying tanks for scrap into a key player in the global arms market.
But first, Strnad, the 31-year-old Czech owner and chairman of the Czechoslovak Group (CSG) – a major supplier to Ukraine – needs to reject an offer from rival Vista Outdoor (NYSE:), the parent company of Kinetic, to gain control of about 20 percent of the Western small market. ammunition and almost double its revenue from last year’s 1.7 billion euros.
“We are a long-term strategic investor who wants to take it private to build it, develop it and invest in new capacity and technology,” Strnad told Reuters on Friday. “We won’t just come in and shake the company down for money and try to squeeze it out.”
The privately held company, which employs more than 10,000 people at 37 facilities in Europe and the United States, has made a $1.91 billion offer for Kinetic Group, formerly known as Sporting Products, which includes its ammunition business.
Vista Outdoor agreed to CSG’s proposal, which is subject to shareholder approval in May and approval from the Committee on Foreign Investment in the United States.
The company also received a revised $3 billion unsolicited deal from investment firm MNC Capital after rejecting a previous offer from the firm.
Strnad, whose net worth more than doubled last year to $4.4 billion according to Forbes, said his company’s proposal makes sense for a private company like his, not accountable to shareholders, that has the financial power to exploit and expand capacity and confronting what he called “Ups and Downs” in the industry.
Combined with the 2022 acquisition of 70% of Italian small-caliber ammunition manufacturer Fiocchi Munizioni, the deal will make CSG the largest player in this market in the world outside of China and Russia, Strnad said.
“There is a lot of room for efficiency gains and investment in automation, new production lines and machines,” said Strnad, who believes the deal gives the Czech company entry into the government contracting market in the United States and other countries.
FROM MACHINE TO GLOBAL PLAYER
Strnad’s father, Jaroslav, started the business in the post-Cold War 1990s, buying Soviet-era military equipment originally destined for scrapping. He then began renovating it and gradually grew the company from a small operation made up of family members.
His father retired in 2013 and handed over leadership of CSG to 21-year-old Strnad, who started working for the company in high school and oversaw its growth into a major manufacturer in the European Union and an exporter to more than 50 markets, including many NATO peers. Member States.
“I graduated from high school when I was 18 … at 1 p.m. I got in the car and went to the factory to work,” said Strnad, whose first job at the company was working in a warehouse with his grandmother during the summer holidays when he was still child. 13.
Rapid growth under Strnad’s leadership accelerated in 2022 following Russia’s invasion of Ukraine, as the company was able to supply refurbished Soviet-era tanks as well as new equipment and quickly ramped up production of ammunition.
Core profits more than doubled in 2023 to 439 million euros, and CSG forecast continued strong demand for heavy military equipment and large-caliber ammunition as countries ramp up defense spending amid the war in Ukraine.
Strnad said the company plans to use its war chest for some additional acquisitions, although not on the scale of Vista.
“We would like to grow across all of our divisions within the group,” Strnad said, noting that targets in the defense industry command big premiums these days. “Every group has smaller or larger acquisitions. Some are verticals and some are buying competitors.”
ARTILLERY
According to Strnad, the company has seen tremendous growth thanks to Ukraine’s large-caliber ammunition production, where its annual capacity has increased 10-fold to more than 500,000 rounds for tanks and various artillery rounds, a significant portion of current European capacity. .
“We have invested hundreds of millions of euros in capacity since the beginning of the war,” Strnad said.
He said the company already has a six-year order backlog for artillery and continues to invest in new capacity at its factories in Slovakia, Spain and Serbia.
Strnad said CSG also plans to restart and suspend the gunpowder and nitrocellulose production line at the Italian plant in cooperation with the Italian government to solve what he called a huge bottleneck for European ammunition manufacturers.
The company, which also produces howitzers, armored vehicles and multiple launch rocket systems, sees promising markets in Asia, the Middle East and Africa, as well as Ukraine, where it is exploring joint ventures with Ukrainian companies.
Although the war now makes it difficult to open production, Strnad believes that the help and goodwill his company and the Czechs have received for supplying weapons and equipment to Ukraine could turn into an important springboard into the country’s future defense industry.
“In the long to medium term, we would like to localize and help them with their own defense industry,” Strnad said.