The Pink Zebra of Wall Street
April 4, 2014 6:29 PM Subscribe
Guitar Center, America's largest music equipment retailer, is facing some tough financial times. This in itself is not necessarily news. What's intriguing is that Guitar Center, which was previously owned by Bain Capitol -- yes, that Bain Capital -- was recently acquired by its major creditor, private equity firm Ares Management. At least one analyst is speculating that Ares Management may see more upside in peddling Guitar Center's junk bond rated debts to other suckers than in revitalizing it to sell more guitars and amps, a strategy that harkens back to the recent sub prime mortgage market implosion.
From the last link:
From the last link:
Complexity: the financial structure of this operation seems absurdly complex given their business of selling guitar amps. To truly understand the structure of the Guitar Center business, I have had to consult professionals with a much deeper expertise – CEOs, CFOs, people with masters degrees in finance. Almost every one has looked at various details of the company and said, “That’s a pink zebra right there,” or, “Wow, I’ve maybe heard of that kind of thing one other time.” To understand some of their SEC filings, I had to drag up papers from the finance department of the Wharton School of Business. When you look up the corporate structure from which Bain Capital invested in Guitar Center, you find it (as of 2009) located as 3.34% of a billion-dollar investment corporation based offshore in the Cayman Islands, wedged into a financial partnership structure with a dozen other corporations.(Via)
In my experience, complexity of this sort is meant to keep casual analysts, regulators and journalists guessing – not unlike what we saw with the mortgage market eight years ago. And just so I had a good active comparator, I pulled the annual report for ExxonMobil, a company with a $290 billion market cap. Compared to [Guitar Center], its filings are a relative oasis of simplicity and clarity, with the whole business laid out and finances making basic sense without enormous leaps of logic. Then again, it’s easier when you’re profitable.
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