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FarCenter

(19,429 posts)
24. That's the general idea, but the ploy is more complicated than that
Sun Apr 22, 2018, 05:40 PM
Apr 2018
THE END OF GUITAR CENTER


...

I am not going to provide a long-hand analysis of Guitar Center’s capital structure and every gruesome event in the company’s recent history; if you are so inclined, you may review my past work and browse Google.

A quick summary tells the tale of how close we are to the end, but first we should revisit the beginning. Guitar Center grew with the help of private equity firm Weston Presidio to become a national competitor and, eventually, a publicly-traded company. With the leadership of Marty Albertson, Larry Thomas, and others, the company continued to grow and prosper as a public company until leaders enlisted the help of Bain Capital to take the company private through massive leverage just prior to the largest financial crisis in a century. As you consider any of the other events associated with the present, this Original Sin of the past is the very root of the problem.

Private equity firms like Bain take mid-sized companies and pump them full of debt with the express intent of making them industry-dominating competitors, selling them to the stock market as a candidate for massive growth, and cashing in. To make this possible, private equity’s stake in the company is usually represented by “payment in kind” (PIK) notes, a type of bond that pays crushing interest – in this case 14.09% – but requires no cash outlay until the bond’s maturity. So that 14.09% is accruing, but it isn’t due for years, ideally after the company has been sold to what is often charmingly referred to as “the dumb money,” the retail investors who buy a stock without knowing the company’s true financial position. Before any of the company’s real problems are revealed, the private equity firm receives its payback in the form of stock, since PIK notes can be paid back in any medium of exchange. If all goes to plan, the stock price shoots up after the IPO and the PE firm makes a tidy profit – all in about three to five years.

Bain made two critical mistakes from which it cannot recover. First, it attempted to run this playbook on a company that had just done this very thing with Weston Presidio five years prior. Second, it did so just as the housing fraud and financial insanity which characterized the late 1990s and early 2000s nearly destroyed the U.S. dollar and left us with martial law. Every business maneuver that follows this initial error is too little, too late. Compound interest on debt is the strongest force in the universe, and retail has changed too much for any predictable corporate management technique to have a noticeable effect. The rest of this story is details.


https://www.ericgarland.co/2015/02/03/end-guitar-center/
fuck Eliot Rosewater Apr 2018 #1
The problem is that there is no place to sit? oberliner Apr 2018 #2
That would suck. Loki Liesmith Apr 2018 #3
Vultures - isnt this Bain capital? Dream Girl Apr 2018 #4
It would have to be some bullshit like this. Dave Starsky Apr 2018 #7
They'll probably merge it with something like PetSmart... KY_EnviroGuy Apr 2018 #10
Guitar Center to Be Acquired by Bain Capital for $1.9 Billion FarCenter Apr 2018 #9
Bain - as I recall they deliberately treestar Apr 2018 #16
That's exactly what they do. That's ALL they do. Dave Starsky Apr 2018 #20
That's the general idea, but the ploy is more complicated than that FarCenter Apr 2018 #24
then Ares Capital came in melm00se Apr 2018 #26
Uh-oh. That's my toy store. (n/t) Iggo Apr 2018 #5
Another brick & mortar store gone CountAllVotes Apr 2018 #6
The problem is licensing Miles Archer Apr 2018 #8
Thank you mshasta Apr 2018 #11
Is Bananas at Large still around? CountAllVotes Apr 2018 #17
Seems they are still around CountAllVotes Apr 2018 #19
GC Owns Musician's Friend as well OneBlueDotBama Apr 2018 #32
Sweetwater Sound... Adrahil Apr 2018 #21
Guitar Center owns Musicians Friend. Eko Apr 2018 #33
I read that the sales of electric guitars have been declining ismnotwasm Apr 2018 #12
There have been rumors of such for years. Someone will purchase what's left of them and salvage Hoyt Apr 2018 #13
This is another retail model that isn't paying attention to consumers... cbdo2007 Apr 2018 #14
And Epiphone is an affordable alternative to a Gibson... Adrahil Apr 2018 #22
Not surprising blake2012 Apr 2018 #15
Some place to sit. Yes! MineralMan Apr 2018 #18
Awesome! NT Adrahil Apr 2018 #23
What a great story Beakybird Apr 2018 #28
No more guitar heroes! nt USALiberal Apr 2018 #25
It had to happen. All of trump supporters are buying banjoes instead. tonyt53 Apr 2018 #27
Just Another Bain Capitol Success. OneBlueDotBama Apr 2018 #29
Good - as a player/collector for years, happy to see this DrDan Apr 2018 #30
Rock is not as popular w/youth as it once was. radius777 Apr 2018 #31
Pretty much every year Eko Apr 2018 #34
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