Interview with CSG USA CEO Paul Lemke not only about the acquisition of Kinetic Group

Czechoslovak Group (CSG), a global industrial technology group based in the Czech Republic, has appointed Paul Lemke as CEO of CSG USA. CSG USA is the U.S. arm of the group. Paul Lemke will be responsible for identifying growth and innovation opportunities and developing strategic business relationships with key business partners in the U.S. market, including the U.S. armed forces, police forces and other government agencies. We interviewed Paul Lemke, who has nearly 30 years of experience in the military and the firearms and ammunition business.

What was your previous career prior to joining CSG USA?

I served for years in the U.S. Army. I'm a retired lieutenant colonel. I first served as a paratrooper with the Rangers, then moved on to be a political military advisor and then military attaché. I then worked in security assistance, helping allied countries train and equip their armed forces. I worked mostly in South America, where I focused on counter-narco-terrorism. After leaving the military, I went into business and started a small arms ammunition company called PolyCase. Our ammunition was well known for two reasons. We had a polymer bullet with a copper matrix, which was very innovative at the time. We were also known for our two brands of ammunition, which were Scepter and Ruger.

Subsequently, I was fortunate enough to join Ammo-Tech, which is the largest manufacturer of small arms ammunition in Europe. As CEO of Ammo-Tech USA at the time, I helped grow the company from a small business of 28 people to over 150 people and from under $10 million in sales to over $150 million in just three years.

Then, a few months ago, I met David Stepan, CEO of the Ammo+ division, at the SHOT Show, where David told me all about CSG. I didn't know anything about this holding at the time, which was quite surprising, as I've been in this business for, say, 30 years. Then when I got the opportunity to join CSG, which is growing rapidly, I didn't hesitate.

What is your job description at CSG USA?

As CEO, I am responsible for several different areas. One of them is obviously sales, and that's trying to bring CSG products to the U.S. market. The other part is finding partners to work with in the U.S. market. We are a relatively unknown organization in the United States. Therefore, it is to our advantage to cooperate as much as possible with other companies within the U.S. defence industry and also in the commercial sphere. Finally, the most important thing is to represent CSG as a holding company.

When we talk about CSG USA's portfolio, do you offer the entire portfolio in America or do you select some specific products and services?

Technically, we could offer the entire portfolio with more than 1,800 different products. However, I think the best way to enter the U.S. market is to identify a few areas of focus. We have already sold POLR-1 handheld radars, and some other radars to the U.S. Navy and other government agencies, as well as local police departments. We are now focusing on major projects in medium and large caliber munitions, as well as ground-based equipment. Then, of course, there's the Tatra brand, which is very well known in the Czech Republic, whose vehicles have fielding capabilities that I think are absolutely critical to the future success of the U.S. military. Tatra offers unique features and capabilities, and we certainly plan to offer these vehicles to our market.

CSG Holding is not well known in the USA at the moment. How do you intend to present the holding on the U.S. market?

The fact that CSG is not well known in the USA is a great position in my eyes. We don't have a bad reputation, just a good one that we can expand. My intention is to gradually introduce everything CSG has to offer in the USA. We will focus on the U.S. defence industry so that all the main contractors understand who we are and what our capabilities are. These are much bigger than just manufacturing products. We have a lot of capabilities and know-how. We hope that we can gradually build quality business relationships through proper communication, knowing that we are here to do the quality business we intend to stay in.

Has the war in Ukraine changed the demand for defence products in the USA in any way?

The war in Ukraine has absolutely affected demand in the USA., specifically I would say for indirect fire products. These are artillery shells, either medium or large caliber. These are products that we obviously have a lot of experience with. We believe that we can be good partners. In fact, there is one major supplier in the United States. They have already approached us and asked us to participate in a tender with the United States Army for large calibre ammunition. So we are already starting to have successes in a short period of time.

Has the war in Ukraine raised specific demand in the USA for other products, such as advanced unmanned aerial and ground vehicles and so on?

Absolutely. We get a lot of requests for information regarding UAVs or anti-drone systems. But at the same time, as I said, in many cases we are going back to artillery, where indirect fire is a fundamental requirement on the modern battlefield. That is what we are most concerned with now.

How can the U.S. market be significant and inspiring for CSG Holding?

It is no secret that the U.S. market is the largest defence market in the world, and this is of course also true in the commercial sector. So being in the U.S. market and taking it seriously, I see it as a positive step. There are also many things you can learn from doing business in the United States. There is also the cultural aspect. The USA is famous when it comes to business, including various rules and regulations. These are all things that I think we can learn from and implement in all CSG holding companies.

Do you think that Americans prefer their own products to products from abroad? 

I wouldn't say so. I think as long as the price and technology is right and the product has the right features or specifications, then it doesn't matter if the product is from the USA. or abroad. It's no secret that multinational companies from all over the world operate in the USA. They do business here successfully, and there is no problem with Americans buying foreign products. The important thing is that 60% of defence contracts in the USA must have so-called local content. So to really reach our full potential as a U.S. company, we have to manufacture here in the United States. We can do this in two ways. Either we can acquire U.S. companies and manufacture there, or we can set up joint ventures with U.S. partners.

What do you think are the biggest pros and cons of foreign companies operating in the USA?

What one company might call a disadvantage, we call an advantage. When a foreign company invests in the United States, it must go through an approval process through the Committee on Foreign Investment in the United States, or CFIUS. The CFIUS process requires a tremendous amount of transparency. Not only does the review process require this transparency, but usually after approval, particularly for acquisitions that have to do with national defense or national strategic importance, there will be an agreement, a mitigation agreement, between CFIUS and the company that is buying a local business or making a foreign direct investment in the United States. Compliance with the agreement is monitored through annual audits conducted by a third party. The company may also be visited at any time by representatives of U.S. national agencies. Again, we see this as an advantage because we are transparent in the first place. I also think it is an advantage for a new foreign company starting to do business in the USA to be able to explain what it is and how it operates through proper communication.

CSG Holding is constantly expanding its portfolio. If we talk about ammunition, the holding has in the past bought Spain's oldest ammunition factory, Fábrica de Municiones de Granada (FMG), or acquired a majority stake in the Italian company Fiocchi Munizioni, which is the world's leading producer of small-calibre ammunition. The most significant deal to date is the pending acquisition of a portion of Vista Outdoor, which includes world-renowned ammunition manufacturers such as Federal, CCI, Spear, Remington and others under its Sporting Products division or The Kinetic Group, for $1.9 billion. What does CSG have to go through in such a significant acquisition?

Two things are really critical in an acquisition. First, it's the CFIUS process, which requires a tremendous amount of transparent documentation. We have been through this process before with the acquisition of Fiocchi Munizioni and its subsidiary Fiocchi of America, so we believe we will soon receive approval from CFIUS for the acquisition. The second part of the acquisition process is of course the acquisition itself. And because we're dealing with a publicly traded company, we need to make a good presentation to shareholders about who we are and the reasons why we would be an ideal partner for the target company, both to employees and to users of sporting ammunition and other potential end users who use the company's products.

To what extent is the previous acquisition of Fiocchi Munizioni as part of the current acquisition of The Kinetic Group an advantage for CSG?

The advantage is that we have been involved in this transparency process for two years. During the CFIUS process for the acquisition of Fiocchi Munizioni and Fiocchi of America, we had no problems in the audits, even after the acquisition and during the visits that were made by the U.S. government agencies. It shows once again who we are as a company and how open we are by not being afraid to go through this process again.

And what is the current situation regarding the acquisition of Kinetic Group?

We are confident that the CFIUS process will turn out positively and that we will be approved for the acquisition of the Kinetic Group division (Vista Outdooor announced the approval of the acquisition in a press release yesterday, editor's note). Then in June we will have a shareholder meeting where we are confident that the shareholders of Kinetic Group will understand our interest in acquiring this company, not only in terms of expanding CSG's portfolio with this ammunition, but also expanding Kinetic Group's portfolio and of course increasing sales overall. We are interested in investing further in the company, we are interested in employing more people, and we want to help with the overall economic development of Kinetic Group.

In my opinion, it opens up completely different opportunities for American sport shooters and, of course, for the U.S. Department of Defense than they would have with any other companies in the market. I am sure of that.

What are CSG USA's plans for the future?

As we look to establish ourselves in the U.S. market, we will continue to expand CSG USA, not only by selling our products, but also by forming joint ventures with U.S. partners and most likely through further acquisitions. We are already working on this. We see this as a great opportunity for CSG and its companies, as well as for the USA, because we are going to transfer know-how to the United States. and, as with the acquisition of Kinetic Group, we will continue to invest in the U.S. community and employ people there.