Guitar Center Strums a New Tune?
A-CHORD-ing to KEY Guitar Center STAFF, These New Owners Won’t MAJORly Screw Anything Else Up.
I got nuthin’.
[Insert Lame Music Related Pun Here]
Remember how we said that Ares was poised to buy Guitar Center from Bain Capital a couple of weeks ago? Well, the entire transaction went off with about as much consequence as a fart in the wind.
So that happened.
Ares owns Guitar Center now.
Of course, I’m sure that the boys over at Guitar Center were more than happy to know that when someone came in to repo their company it really didn’t make much of a ripple.
Through the debt-for-equity-swap, Bain does get to keep a seat at the big boys table for now. And, GC CEO Mike Pratt seems to be as enthusiastic as a guy can be after the company that he was just put in charged of has been
Ares Management has built a legacy of success through their unique acquisition of blue chip brands across multiple retail sectors,” Mike Pratt, Guitar Center chief executive officer, told Bloomberg News in an email. “Their retail experience will be invaluable to us as we build out new customer offerings in services, rentals and repairs- LA Times
According to The Music Trades online, the deal worked like so:
1- GC issued $615,000,000 in five-year bonds with a 6.75% coupon, and $325,000,000 in ten-year bonds with a 9.875% coupon.
2- GC used the $940,000,000 in proceeds to pay off the debt that Ares held that carried interest rates between 11% and 12%.
3- Ares forgave an additional $435,000,000 in bonds with a 14% coupon for 60% ownership of GC.
4- Make Monies!
Effectively, GC paid off a loan with another loan and still had to turn over the reigns to Ares.
Of course in the financial world, this is about as pretty as it gets. GC successfully went from owing 1.6 billion at 11%-14% to owing about 1.1 billion at 6.75%-9.875% in less than a few days. Now the question is, how is Ares going to make back the half of a billion dollars or so that they just bought GC for?
It’s also worth noting that Bain bought all of GC for 2.1 billion in 2007 and Ares just bought 60% of it for less than $500 million. That’s gotta sting a bit.
Also, old Larry bear at Fender just decided to retire. Sure, the dude is 64 years old and has been in the industry for over 40 years. But it is a bit suspicious that he takes THIS WEEK to announce his retirement.
So far, everybody at GC is saying that they’re going to keep growing and growing and growing and growing until GC stores are as ubiquitous as McDonalds or Starbucks. Keeping true to the old adage: You can never have too much of a thing.
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About the Author: Marc published his first novel Becoming in 2010. It’s a kick-ass book with monsters and dreams and stuff, and you should buy it. Since then, he’s written thousands of articles for TheToneKing.com, many of which have been picked up for circulation by manufacturers and other news outlets. His next book, Drugs and Pancakes, should be available early 2014 if his alcoholic editor can find time to work on it in-between destroying his liver and screaming about punctuation. He graduated from Roosevelt University with honors, which means that he’s not as dumb as he looks. He’s been playing guitar for over 25 years, which is almost twice as long as most of his students have been alive.