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(Reuters) - Alliant Techsystems Inc ATK.N, the world's largest ammunitions maker, will buy gun accessories company Bushnell Group Holdings Inc for $985 million as it shifts focus to a fast-growing shooting sports business from a spending-constrained defense industry.
Alliant, spun off from Honeywell International (HON.N) in 1990 and commonly known as ATK, said it would integrate Bushnell into its sporting group business, which makes products such as sporting rifles, holsters and harnesses.
Bushnell, owned by private equity firm MidOcean Partners since 2007, makes binoculars, riflescopes and night vision equipment for sports such as shooting, hunting and fishing.
"We think ATK is uniquely poised to benefit from the ongoing growth in US shooting sports and we think Bushnell continues to shift the mix towards this higher multiple industry," RBC Capital Markets analyst Robert Stallard wrote in a note titled "ATK + Bushnell - hitting the target".
U.S. gun makers have reported strong results over the past few quarters as consumers scramble to buy weapons on fears of stricter gun-control laws following a shooting at a Connecticut school last year.
President Barack Obama announced two changes to federal gun rules last week to help keep weapons from criminals, and said he still wants to push Congress to pass new gun control measures.
Private equity firms have also come under fire to review investments in gun-related companies. Cerberus Capital Management put its Freedom Group, whose Bushmaster rifle was used in the Connecticut shooting, up for sale in December.
Sources, which told Reuters in August that ATK was nearing a deal for Bushnell, said at the time that MidOcean's desire to sell Bushnell was not influenced by those considerations.
"MidOcean targets investments in companies that, like Bushnell, are leaders in their space where we see multiple opportunities for growth," MidOcean Chief Executive Ted Virtue said in a statement on Thursday.
ATK's former Honeywell businesses supplied to the United States and its allies for 50 years, including the first electronic autopilot that enabled B-17 aircraft to accomplish pinpoint bombing missions during World War II.
It also produces rocket motor and other propulsion systems for human and cargo launch vehicles.
But ATK has been shifting its focus away from aerospace and defense as the U.S. government reins in spending and is investing in its sporting unit.
It bought Savage Sports Corp in June, adding centerfire and rimfire rifles, shotguns and shooting range systems used for hunting, competitive and recreational shooting to its portfolio.
The sporting business will account for about 45 percent of ATK's revenue after the purchase of Bushnell, which is expected to have sales of about $600 million in 2013.
Sporting accounted for about 26 percent of revenue in the fiscal year ended March.
"Sporting is now ATK's largest segment and likely to remain the focus for cash deployment, with strong backing from the senior management team," RBC's Stallard said.
The deal will also help ATK to enter the golf, skiing and camping markets.
ATK said it expects the deal to close in the next two quarters and add to earnings from its next fiscal year ending March 2015. The company intends to fund the transaction with cash and debt.
ATK has secured a $900 million senior secured acquisition financing commitment from Merrill Lynch, Pierce, Fenner & Smith Inc and Bank of America. Citi was its financial adviser. Cravath, Swaine & Moore LLP were legal advisers to ATK.
Morgan Stanley & Co LLC and Robert W Baird & Co Inc were financial advisers to Bushnell, and Kirkland & Ellis LLP was its legal adviser.
ATK's shares have almost doubled in the past 12 months, far outperforming the S&P 500 .SPX index. They were up 1 percent at $98.08 in early trading on the New York Stock Exchange.
Editing by Saumyadeb Chakrabarty