Interesting read regarding Guitar Center

[Norton666]

I know it will be a tough transition/adjustment period for stores and builders. But I do, cynically, hope they go belly up. I hate seeing my local music stores struggle under the purchasing power of GC. They seem to have all major brands on contracual lockdown. Leaving the Mom and Pop stores struggling with less desirable brands.

 

 

GC doesn't have anyone contractual lockdown , but because they buy so much product , they basically determine what MAP pricing is going to be and it makes it very hard for small shops to compete with those prices , so the small shops choose not to carry that line

[Zeppelin Rules]

I bet you'll see downsizing before a full on belly flop.

 

Where a big city might have half a dozen GCs, they might shift to one or two smaller ones.

 

 

Now granted, I've only ever been to one GC, but I was astounded at how needlessly large the store was. I would guess that their costs associated with the buildings themselves must be huge

[paul88lx]

GC doesn't have anyone contractual lockdown , but because they buy so much product , they basically determine what MAP pricing is going to be and it makes it very hard for small shops to compete with those prices , so the small shops choose not to carry that line

 

 

Thanks for the clarification. I assumed it is like a lot of bicycle shops. They can get protected rights to particular brands. So, for example, Trek gives my local bike shop a 20 mile radius around his shop. No other shops within that radius can carry Trek.

[Miter Gauge]

 

It's sad to see Bain pillaging companies like this. 150 or so Bain employees benefit while thousands of families lost pensions, GC ran small shops out of business and Bain sold GC down the river by signing them up for 10% interest loans they can never repay. All the while undercutting everyone out of business. They ruined the entire industry. Hopefully small family companies can rise from the ashes and companies like Sweetwater become the dominant market players.

 

 

I don't think Bain caused this.

 

They paid a fair price for GC and GC ran the place into the ground, it isn't Bain's fault.

 

GC's rating became junk and GC agreed to take a loan at 10% because their credit is trash. The are 1.6 BILLION in the hole. They are damn lucky to have gotten a loan at all.

 

Bain is a fund that others invest into. Some of these entities include pension funds, university and charitable endowments. Thousands and thousands of people, not all of whom are high wealth individuals, count on Bain to be profitable.

 

Bain paid 2.1 billion for GC and its brands, if GC goes under Bain loses BIG time, Bain would be foolish (and potentially set themselves up for a lawsuit) to dump anymore of their stakeholder's money in a sinking ship.

[Miter Gauge]

 

I think you're wrong man. GC / MF make up a HUGE percentage of the big guys ( Gibson , Fender etc) annual sales. A few years back when Bain first bought GC and restructured all their debt , it changed the whole face of Fender. Just the past due amount that GC owed them was enough to make Fender restructure their entire business model. Think about how many mom and pop shops still have a wall of Gibsons , very few. If they close (which they won't) it will change everything as we know it when it comes to gear

 

 

It was my understanding that Gibson started requiring a minim order of $100,000 which would keep most mom and pop shops from carrying Gibsons at all.

[Murk]

direct sales, so what

[Miter Gauge]

 

bain is not a venture capital group. they are a private equity fund focused on leveraged buyouts.

 

 

Bain's practices do include venture capital operations.

 

From their website:

 

Today Bain Capital's affiliated advisors make private equity, public equity, fixed income and credit, venture capital and absolute return investments across multiple sectors, industries and sector classes. The people-intensive, value-added approach instilled at the firm's founding remains at the core of Bain Capital's competitive advantage, which has enabled the firm to deliver industry-leading returns to a diverse group of investors including pensions, endowments, foundations and individuals.

[GREC]

Bain got their grubby hands on it

I am so f#in' sick & tired of 3rd parties suckin money out of businesses.

God damn the pusher....

[Pepi]

 

why not?

 

 

FAIL at reading

[OverDriven]

 

if GC/MF goes down, i wonder how that will impact major guitar companies who get a lot of their sales through them.

 

 

Guitar Center isn't determining the market. The consumers are. If GC goes away, it's not like demand will change. People will simply buy their guitars and amps from someone else.

[OverDriven]

Bain got their grubby hands on it I am so f#in' sick & tired of 3rd parties suckin money out of businesses. God damn the pusher....

 

Read Miter Gauge's post. He's right. People are so ignorant.

['63-Strat]

Interesting how during their most profitable decade they were able to give their employees benefits and pensions and now that they're playing the keep everyone at part-time game they're {censored}, and their staff are morons. Just more corporate greed bs.

[~Abstract~]

 

Interesting how during their most profitable decade they were able to give their employees benefits and pensions and now that they're playing the keep everyone at part-time game they're {censored}, and their staff are morons. Just more corporate greed bs.

 

 

 

This.

 

Some industries can't follow the Walmart model.

[SteveiJobzz]

 

It was my understanding that Gibson started requiring a minim order of $100,000 which would keep most mom and pop shops from carrying Gibsons at all.

 

 

This is true. A couple years back a local guitar store in Appleton by where I live printed out an explanatory brochure of why they would no longer carry new Gibson guitars. Some crazy {censored} like Gibson mandating that they must buy hundreds of thousands of dollars in new guitars, PLUS the were required to carry something like at LEAST 50% of the new "robot/reverse v/moderne/zoot suit" special edition guitars. So THAT would be Gibson.

 

Fender is different though IIRC. I'm sure they have a minimum order requirement, but it's MUCH lower than Gibson and I think the vendors have more control (colors, styles, product lines) than what Gibson was offering.

[Ron Burgandy]

 

I don't think Bain caused this. They paid a fair price for GC and GC ran the place into the ground, it isn't Bain's fault. GC's rating became junk and GC agreed to take a loan at 10% because their credit is trash. The are 1.6 BILLION in the hole. They are damn lucky to have gotten a loan at all. Bain is a fund that others invest into. Some of these entities include pension funds, university and charitable endowments. Thousands and thousands of people, not all of whom are high wealth individuals, count on Bain to be profitable. Bain paid 2.1 billion for GC and its brands, if GC goes under Bain loses BIG time, Bain would be foolish (and potentially set themselves up for a lawsuit) to dump anymore of their stakeholder's money in a sinking ship.

 

 

I was under the impression they secured the majority of that credit under Bain management? Serious inquiry, I don't know much about this deal.

 

 

I also understood that Bain Capital made their money through consulting fees and percentages of the buyouts. Essentially I'm trying to ask if Bain would actually lose their own money should guitar center fail. Is this another "we win some we lose some" situation where Bain won't take the hit if the investment fails? Well, except Bain wins in all because they structure the deals and provide the consultation.

 

 

I know I'm pretty ignorant, so can you hook me up with some knowledge?

[HottKarl]

 

I don't think Bain caused this. They paid a fair price for GC and GC ran the place into the ground, it isn't Bain's fault. GC's rating became junk and GC agreed to take a loan at 10% because their credit is trash. The are 1.6 BILLION in the hole. They are damn lucky to have gotten a loan at all. Bain is a fund that others invest into. Some of these entities include pension funds, university and charitable endowments. Thousands and thousands of people, not all of whom are high wealth individuals, count on Bain to be profitable. Bain paid 2.1 billion for GC and its brands, if GC goes under Bain loses BIG time, Bain would be foolish (and potentially set themselves up for a lawsuit) to dump anymore of their stakeholder's money in a sinking ship.

 

 

This isn't completely true. Bain doesn't put up all of their money to buy the company; they borrow most of it and stick the floundering company with the debt....which is probably what happened here. Stupid decisions by desperate management destroys these companies. Bain Capital is a {censored}ing cancer.

 

This is probably the best article I've read about how Bain Capital operates:

 

http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829

 

 

EDIT: Dave beat me to the punch ^^^....Bain Capital is in the business of leveraged buyouts.

[paul88lx]

This isn't completely true. Bain doesn't put up all of their money to buy the company; they borrow most of it and stick the floundering company with the debt....which is probably what happened here. Stupid decisions by desperate management destroys these companies. Bain Capital is a {censored}ing cancer. This is probably the best article I've read about how Bain Capital operates: http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829 EDIT: Dave beat me to the punch ^^^....Bain Capital is in the business of leveraged buyouts.

 

 

 

Thanks. You explain it more eloquently than I can.

 

And yes, they are a {censored}ing cancer.

[Miter Gauge]

 

I was under the impression they secured the majority of that credit under Bain management? Serious inquiry, I don't know much about this deal. I also understood that Bain Capital made their money through consulting fees and percentages of the buyouts. Essentially I'm trying to ask if Bain would actually lose their own money should guitar center fail. Is this another "we win some we lose some" situation where Bain won't take the hit if the investment fails? Well, except Bain wins in all because they structure the deals and provide the consultation. I know I'm pretty ignorant, so can you hook me up with some knowledge?

 

 

Bain invests in some companies and acquires others. Bain purchased GC and all of its debt at the time (which was a lot). Bain still owns GC, so if GC goes down then Bain, or more specifically, its investors will be out money.

 

How much Bain loses is hard to say because, after the liquidation, whatever money is left will be split up among their creditors based on what position they have with respect to the debt.

 

The sad news is that GCs suppliers are likely to be in LAST position meaning some with get next to nothing and they don't even get their unsold inventory back. It could be devastating to some suppliers.

 

In my experience equity firms typically leave the management of the firms they purchase in place so while Bain may be the principle owner of GC holdings but it's unlikely that they handle too many of the day to day business operations so it isn't likely that Bain is the cause of GC's downfall especially since the new, Bain owned venture put GC in a position of zero debt. An enviable position for anyone.

 

Furthermore the constituents of Bain are autonomous. That is, if GC goes down, it won't hurt Duncan Donuts or HCA and so on.

 

You are right that, under Bain's ownership GC secured capital at a high interest rate which is a pretty good indication that GC got the loan(s) using their own financials and they aren't guaranteed by Bain.

 

Bain can't afford to put in good money after bad. They wouldn't be in business for long if they did, also, Bain investors could go after them for mal practice if they even tried to bail such a poor performing investment. If GC can't keep up then Bain will have no choice but to let them go bankrupt. Again, Bain doesn't get the luxury of propping them up because the money invested isn't theirs (unless they invested their own capital) it is their investors'.

 

You are right that Bain does use its investors' money to buy and invest in businesses but like mutual funds and other investment vehicles, they make money on the performance of those investments. Furthermore, if their performance drops, then so does their reputation and potential customer base.

 

In short, Bain and its investors - municipalities, retirement funds, charitable endowments and rich people will lose money because it will impact Bain's aggregate portfolio performance.

 

That said, the biggest losers are suppliers who've extended merchandise on credit to GC. They aren't likely to get much, if any, of their money back. Lessors of the dozens and dozes of GC stores around the country.

 

I am sorry that my post was so long. I hope it made sense.

[Miter Gauge]

 

This isn't completely true. Bain doesn't put up all of their money to buy the company; they borrow most of it and stick the floundering company with the debt....which is probably what happened here. Stupid decisions by desperate management destroys these companies. Bain Capital is a {censored}ing cancer. This is probably the best article I've read about how Bain Capital operates: http://www.rollingstone.com/politics/news/greed-and-debt-the-true-story-of-mitt-romney-and-bain-capital-20120829 EDIT: Dave beat me to the punch ^^^....Bain Capital is in the business of leveraged buyouts.

 

 

First of all, I'm not a fan of Bain or Romney and it think everyone knows that Rollingstone isn't going to paint a non-biased picture of a GOP candidate or a company he founded.

 

It is true that Bain uses their investors money just like Vanguard and other investment vehicles but Bain used 2 billion of its investors dollars to buy GC.

 

Bain may be an awful company and a cancer but it wouldn't be in business for long if they didn't make money for its investors.

 

I stand by my statement that GC is in trouble because they made poor business decisions not because Bain bought them. GC had a huge amount of debt before 2007 and they have it again.

[Miter Gauge]

Interesting how during their most profitable decade they were able to give their employees benefits and pensions and now that they're playing the keep everyone at part-time game they're {censored}, and their staff are morons. Just more corporate greed bs.

 

 

That is true. They used to be a pretty good place to buy gear. Their staff was empowered to cut deals and they knew what they were talking about but now, it's almost sad to go into the one around here.

[Ron Burgandy]

So Bain doesn't use bank loans to buy up these companies? Goldman Sachs didn't provide the majority of the cash?

 

 

 

From what I understand of that specific deal, which again isn't a whole lot, is that Bain bought guitar center for $1.9b and assumed its debt of roughly $200m. Well, Bain put up a fraction of the money, and borrowed the rest from Goldman. When they acquired GC they consulted GC to take out massive loans to increase the operating capital, charged high consulting fees, and left GC on the hook after skimming off said loans. Since GC did have cash inflow they were leveraged to death and advised by Bain to cut benefits and other menial cuts to the labor force so GC could make loan payments.

 

 

tl;dr Bain bought GC with credit and signed GC up for credit cards to cash out the equity of the brand. Bain has already gotten its ROI and the banks that financed this will get their money through massive interest payments and being first in line at bk court.

 

 

No?

[Miter Gauge]

 

So Bain doesn't use bank loans to buy up these companies? Goldman Sachs didn't provide the majority of the cash? From what I understand of that specific deal, which again isn't a whole lot, is that Bain bought guitar center for $1.9b and assumed its debt of roughly $200m. Well, Bain put up a fraction of the money, and borrowed the rest from Goldman. When they acquired GC they consulted GC to take out massive loans to increase the operating capital, charged high consulting fees, and left GC on the hook after skimming off said loans. Since GC did have cash inflow they were leveraged to death and advised by Bain to cut benefits and other menial cuts to the labor force so GC could make loan payments. tl;dr Bain bought GC with credit and signed GC up for credit cards to cash out the equity of the brand. Bain has already gotten its ROI and the banks that financed this will get their money through massive interest payments and being first in line at bk court. No?

 

 

You seem to know more about the deal that I do. In my experience VC groups don't usually operate in the way you describe.

 

Since you know that Bain got its ROI, how much return did Bain get?

 

I'm not sure what you mean about the GC credit cards though. GC or MF credit cards used to be issued by GE money bank but the debt was bought by HSBC later on. Are those companies owned by Bain?

[Ron Burgandy]

Maybe I was trying to be too clever.

 

 

 

 

 

 

 

 

 

 

Bain advised guitar center to take out the massive loans (cashing out the equity in the brand) and increasing their debt load from $200m (not crushing) to several $600m+ loans to cover management fees and to repay the loans Bain took from Goldman to actually buy the company. Bain and their direct investors were only on the hook for $10m roughly. The loans taken out in Gc's name were mainly to repay the loans Bain took out. Bain now owns the company and GC paid for it. When the loans guitar center was advised to take out were due, guitar center had to take out high interest loans to cover their previous debts and stay afloat.

 

All the while Bain stays 'hands off' since the loans are in Guitar Center's name.

[paul88lx]

It's no different than the mafia busting out your diner or nightclub because you're in a bit of a hole.

 

It all seems so soul-less.

[Ron Burgandy]

They also overbid on the stock price since they're not paying for it. They just ensure the target is worth enough to cash out to repay the debt Bain incurs for the initial cash outlay. Bain sticks around to advise them on how best to repay wall street thus making certain Bain's bank friends also make money. Hell, they even work tax loopholes to write off the interest on any loans they take out.

 

 

 

 

Fwiw, consulting fees are paid to Bain Capital and not to even their own investors.