Why Guitar Center Is On The Financial Brink Guitar Center transitioned into a public company in 1997, and that's when the trouble began. Here's a very brief synopsis of what went on.
1. In 2007 GC was taken private by Bain Capital. Yes, that's the same company that Mitt Romney owned. They did what all financial vultures do; cashed the founders out, put in a relatively small bit of cash, and loaded the company up with $1.2 billion of debt (that's Billion with a B).
2. The idea was to flip it. Just like buying a house, fixing it up, and selling it at a profit, that's what the Bain guys were looking to do. They ran into two big problems though: a. The whole idea was to expand into Europe but it was more difficult than they imagined so it never happened. b. The economy crashed in 2008.
3. Bain couldn't pay the bills. They had this huge $600+ million ballon payment due that they kept pushing into the future. To make its bottom line look better, they squeezed their vendors (the manufactures that supplied them) for better terms, lowered salesman's commissioned, cut their inventory back, and sold Musician's Friend, but it still wasn't enough.
4. New management took over. When Bain couldn't make the big balloon payment, its biggest debtor, Ares Management, took over last year and that's when the slashing really began. The company still continues to open stores, but that's just another bit of financial engineering that won't come home to roost until next year.
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