In a blog post by Eric Garland reveals in a blog post entitled "How to get beyond the parasite economy", Bain Capital has gutted Guitar Center: "Had their executives never made visits to my Facebook page, I never would have thought that it was worth any research, but my experience is that if you see unusually emotional behavior from technocrats, a bigger story lurks. Confirming my instincts, a perfunctory analysis of the company's finances showed gargantuan debt structure and a liquidity crisis (also known as being broke.) Because the company is/was owned by a holding company created by private equity firm Bain Capital, it was impossible for me to deduce exactly the structure of their ownership and debt covenants. To summarize the story for those who don't have a taste for corporate finance, just imagine you had $65,000 in credit card debt financed at a crappy rate, and that you made around $80,000 a year. Things on the horizon would look bleak, and you would be forced to either change your lifestyle or declare bankruptcy and get a fresh start.
He concludes: "As the weeks have worn on, I find myself resolute in what should be done. It is time to convince the financial parasites to leave us alone. Massive changes to the tax code need to make labor and entrepreneurship more valuable than financial trickery, but in the meantime, you can help as an individual. I recommend that you refuse to buy as much as a guitar pick from any company currently owned by a private equity firm, or any financial entity that does not come from the music industry itself. Your purchasing decisions will decide whether these financiers will continue to dominate this industry, because if they cannot achieve a return on these bonds, they will move on. The revenue that has been consolidated through complex debt structures will return to the rest of the industry. It will mean new businesses and new jobs. In just one small way, life will get better."
So should we boycott Bain Capital and other parasitic "capitalists"?
(Score: 1, Interesting) by Ethanol-fueled on Monday April 07 2014, @01:36AM
" So should we boycott Bain Capital and other parasitic 'capitalists'? "
Yes, and we should also sodomize them with a flagpole.
As somebody who has bought many a piece of gear from Guitar Center, I'm sad to hear this, because its the only big-enough music store around here. And big music stores are the only stores where I can get that "kid in a toy-store fix," and play with those toys all day. However, Craigslist and eBay have both taken a bat to Guitar Center's profit margins with their cheaper (a big issue when everybody else generally has less money for toys nowadays) and often more-convenient offerings, and Musician's Friend [musiciansfriend.com] is for all that other new stuff you can stand to wait more than a week for.
(Score: 5, Informative) by Anonymous Coward on Monday April 07 2014, @01:42AM
Hate to burst your bubble, but Musician's Friend is owned and operated by the Guitar Center folk.
(Score: 4, Interesting) by Hairyfeet on Monday April 07 2014, @01:54PM
Why did he get labeled "flamebait"? Sure he could have used a little more tact but there is a good reason why we used to call those like Bain "corporate raiders" because bleeding every drop out of a company and leaving behind empty buildings and unemployment has been their SOP for quite awhile. Considering what I've heard about the "made for Guitar Center" instruments, especially the Gibsons, and the low quality being sold there? i don't think I'll mourn them anymore than I mourned Circuit City.
That said if any of my fellow bassists or guitarists want some cheap guitars? Check out Rondomusic [rondomusic.com] and look up the Ktone brand on Amazon. I have bought from both and they are surprisingly good for such low prices, the necks are straight, fretwork is good, all in all you get a pretty good bang for the buck.
ACs are never seen so don't bother. Always ready to show SJWs for the racists they are.
(Score: 1) by Statecraftsman on Monday April 07 2014, @05:07PM
It was probably the flagpole imagery. I modded it up but decided to forgo the moderation to make this comment.
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(Score: 3, Insightful) by Horse With Stripes on Monday April 07 2014, @01:41AM
This is a nice sentiment, and I don't want to come off as a dick about this, but ... at what point is it just ridiculous to ask *everyone* to research *every* company they may buy *anything* from, even something as small as a guitar pick?
- A significant portion of our local gas stations, chain restaurants, chain stores, etc are franchised. How would you like us to go about checking into the ownership of every franchise group to see if they are are owned, wholly or in part, by a private equity firm?
- We have a lot of shopping malls, strip malls, commercial real estate, and what have you around here too. How do you suggest we check into who owns all these pieces of real estate, and any shops in them, to determine which private equity firms hold partial or full ownership? Is buying a cup of coffee from a small bagel place that rents space in a strip mall owned by a REIT that has private equity firms as investors helping the REIT because the part of the rent paid by my cup of coffee may end up in their pockets?
- Private equity firms can and do hold stock in many international companies. Since private equity firms don't exactly publish all of their holdings, how do we know which of these companies we shouldn't do business with?
Yes, private equity firms can ruin everything they touch. Or, we can ruin those businesses by avoiding all businesses owned, or doing business with, private equity firms in some fashion. In the end the rich guys still will be rich, just not *as* rich. And we will pay more, spend hours researching things that we know little about, and become vigilante consumers.
(Score: 4, Insightful) by GeminiDomino on Monday April 07 2014, @01:51AM
I think it's more ridiculous to go off against "parasitic companies" and then beseech us only to buy gear financed from "within the music industry."
"We've been attacked by the intelligent, educated segment of our culture"
(Score: 5, Informative) by Blackmoore on Monday April 07 2014, @03:25AM
Horse - you might feel different if you'd ever worked at a place owned by one of these parasites. I've seen middle management (90% of) let go two weeks before christmas just to make shareholders happy. Companies whose debt load did not come from investments in the company, but off loaded from some other company that the parasite took a loan out for (i suspect it paid for bonuses for the CEO's).
it's immoral what they do to extract every last cent, and then they dump the husk of the company back into public ownership stripped of assets, production, and competent management to wither and die.
(Score: 5, Interesting) by starcraftsicko on Monday April 07 2014, @04:12AM
My understanding is that, most of the time, PE gets involved when companies are in trouble for one reason or another [citation needed]. The options are usually to let a PE firm take the company private and give some value to the shareholders, or to liquidate in some other way that probably would not leave the company intact.
.
So while they may manage like heartless jerks, thanks to their... heartlessness (?), only 90% of the middle management got laid off in December instead of *everybody* back in July.
.
I'm sure that there are counterexamples[citation needed] of companies that were raking in billions in profits and 'beating the street' for 20 consecutive quarters who were captured and gutted by PE like Bain, but none spring to mind.
.
In this case, it looks like Bain lost money in the deal and probably will not recover their investment. It also looks like another heartless PE firm is going to take a shot at making it pay. So the question is, do we hate this so much that we want GC to just fold already.
.
Do we?
This post was created with recycled electrons.
(Score: 0) by Anonymous Coward on Monday April 07 2014, @05:27AM
>In this case, it looks like Bain lost money in the deal and probably will not recover their investment.
If you look at taxes paid, they appear to NEVER make money. Just like that disastrous pair of movie flops: The LOTR and Marvel movies.
(Score: 1) by gishzida on Monday April 07 2014, @05:52AM
Actually they gutted the company's bank account then forced it to take out a $900+ million loan to pay Bain for its own purchase... in other words like the buyout of Novell a couple of years back it cost the buyer *nothing at all* [A similar leverage firm bought Novell for $1 billion and Novell had a billion in the bank at the time-- net price $0 dollars].
Bain got the money from that loan and Guitar Center got the debt... So Bain got *more* money than they invested and now they've handed the husk over to the company that lended GC the money. It will in turn do the same thing... at some point GC will be liquidated and they'll all move on to the next victim.
Kinda sad that both GC and Musician's Friend are going to end up in the trash dump... but this is the way the Libertarian Economy works: Buy 'em, gut 'em, and move on to the next victim.
(Score: 4, Informative) by starcraftsicko on Monday April 07 2014, @08:20AM
OKfine.
.
My question is - Isn't this company (GC) just a reanimated corpse that already died in 2007 and should rightfully be buried were it not for the Bain voodoo that revived it to search for brains?
This post was created with recycled electrons.
(Score: 1) by gishzida on Monday April 07 2014, @09:48AM
Are you implying that this is the way a certain... millionaire financed his campaign for the Presidency in 2008? If you are then I'm glad we didn't elect him, he'd have done the same... hey wait wait a minute... who *did* the government rescue in 2008? How much did they BAIN us for?
(Score: 0) by Anonymous Coward on Monday April 07 2014, @02:33PM
millionaire financed his campaign for the Presidency in 2008?
McCain (and Palin)?? Or are you thinking about some other party in the 2008 election? perhaps you got the date wrong?
(Score: 1) by gishzida on Monday April 07 2014, @10:09PM
Actually yes and no... He ran for that nomination too... and lost to the AA [Arizona-Alaska] pair.
(Score: 2) by Blackmoore on Monday April 07 2014, @01:03PM
Well - in this case yes. but there are plenty of other cases (like the aforementioned Novell) where PE has taken over companies that were either having a bad time in the stock market, or they just looked like good targets and easy to milk dry (Olive Garden).
While I'm sure we can find some cases where PE has turned around a dieing company - after all they have to keep some companies alive so the firm can keep playing this shell game, the majority of PE companies are all about extraction of value now.
(Score: 2) by Blackmoore on Monday April 07 2014, @03:30PM
right, but the really stupid thing about this is if the PE company loses money on a "failed investment" they still get a write off for the taxes.
think about that. they get a bonus from the government for allowing a business to fail.
tie that together with a good dose of cooking the books (or RIAA MATH, Motion Picture industry math, or Congressional math) and you have a recipe for fraud and enrichment trough raping and pillaging other businesses.
(Score: 1) by Horse With Stripes on Monday April 07 2014, @07:22PM
(Score: 2) by Blackmoore on Monday April 07 2014, @08:09PM
Yeah, and will take an act of law to make such a list available to the public (including who owns the PE)
highly unlikely to happen - but one can talk about it and hope some political hack will understand what his "base" will like as law.
at very least I think congress should wear nascar like suits with the names of large doners. (it's about the same list)
(Score: 1) by Horse With Stripes on Monday April 07 2014, @11:58PM
(Score: 2) by Blackmoore on Tuesday April 08 2014, @01:25PM
if i had any mod points :)
(Score: 2, Insightful) by tftp on Monday April 07 2014, @02:37AM
It is time to convince the financial parasites to leave us alone.
I thought it to be trivial. No new laws needed. Just don't borrow from them!
(Score: 2) by sjames on Monday April 07 2014, @03:14AM
That doesn't do it if they muscle in on your employer. Bye Bye pension!
(Score: 4, Informative) by tftp on Monday April 07 2014, @03:48AM
That doesn't do it if they muscle in on your employer. Bye Bye pension!
Then the fault lies with the employer who sold you out.
Fact is that there are always "evil forces" out there, of some sort. I don't mean evil spirits, of course, just the usual chaos. Unless you have nothing of value whatsoever, there is always someone or something in the real world that wants it. You cannot exist on presumption that no pathogen will ever enter your body. You have to actively fight each and every one of those if you plan on surviving in this world just one more day.
Those "financial sharks" are a force of nature, just as gravity is. You can bitch and moan, but they are always out there, and they always want a bite out of you. But you can easily become immune to them. When they offer you a nice credit, say "no" and walk away. When they offer to pay all your expenses while you are nursing a startup, read the contract. Then read again. Then burn it. (Reading was just to make sure that they don't offer you anything good.) There are cases when you have to sell your soul to VCs - but then you have to go into the deal with clear understanding that you are NOT the owner; you are merely a well paid hired hand, and nothing in your job is guaranteed.
This example of the guitar place is relevant because it exposes the naivete of the blogger. He bemoans: "Financial parasites have taken over the host company and could not care less about the industry itself!!!!111!eleventy!" He calls them parasites, but when the young company was struggling to keep the lights on, I bet the company management was ecstatic to get an infusion of cash from the "parasite." In exchange they sold part of their ownership, and all that comes natural with it - such as control.
Now the company is doing poorly. The investment that Bain made is at risk. This is not just some abstract money that came from nowhere. Those are monies that Bain collected from real people, like, actually, you and me (if you or I are investors.) Bain is entrusted with keeping and growing that investment. Now can they just sit idly on their hands and watch as inept executives are driving the company into the ground? I hope not - that would be dereliction of their duty before you and I, their investors.
One can always say: This $diamond_ring is very precious to me, it was in our family for generations, but this heartless pawn shop owner is so rude and crude, he says that if he buys it he will melt the ring and cut the diamond into three pieces. He says it will be the best way for him to sell the thing. But, but, how can he? This is MY PRECIOUS, he cannot do this to my beloved ring!!1!" The recipe here is the same: if you love an item more than the money that it brings, do not sell it. Continue to love it. But if you need the money, accept the fact that you no longer are the owner. Your feelings are irrelevant. You have sold them for cash.
(Score: 3, Insightful) by sjames on Monday April 07 2014, @05:28AM
None of that helps you at all if your employer sells out to them. Too often, they employ legal trickery (that mostly only works if you have a great deal of money) to steal people's pensions, or to force a bad financial situation. These are things that are understood to be immoral and unethical.
In other words, they go well beyond simply expecting to collect either the loan payment or the collateral as a legitimate lender or ethical investor would.
As for being forces of nature, I don't think so. You can't jail gravity, for example, but unethical people certainly can be.
(Score: 2, Insightful) by tftp on Monday April 07 2014, @05:52AM
None of that helps you at all if your employer sells out to them.
If you have an employer then you are not free in aspects that your employer is controlling. End of story. Non-free people shouldn't act surprised that they are not free. For CS or EE self-employment is a walk in a park, compared to a sailor or an oil rig worker. Much of our work is doable on a common computer. If you are both CS and EE you can dictate your price. I am self-employed, BTW.
As for being forces of nature, I don't think so. You can't jail gravity, for example, but unethical people certainly can be.
You can jail one unethical man, but you cannot jail all unethical people. The analogy shows that unethical people (just as any other kind of people) are like molecules - they are everywhere, and you cannot even count them, let alone to individually judge them. You can imprison one Bernard Madoff, but there are hundreds more, eager to take his place. They are smarter than him, they won't be caught - or so they think. You cannot arrest them pre-crime anyway. Crime is possible even in the smallest society ever devised - in a family of two - even though family members know each other better than anyone else.
(Score: 2) by sjames on Monday April 07 2014, @06:29AM
Your answer sounds a lot like bend over, spread your cheeks and pray that they use lube. Bad answer.
The first step is to stop acting as if the problem is anything and everything but the unethical people. Do not let them off the hook. Do not deify them.
Consider if everyone takes your advice and makes sure they aren't one of those non-free people. You won't be able to do your job very well when they stop working for fabs or drilling oil, etc etc. It is in your best interest to make sure they don't feel the need to take your advice.
(Score: 1) by tftp on Monday April 07 2014, @07:08AM
Well, when solving a problem the step 0 is "understand the problem." I am unsure if this problem is fully understood yet.
Basically, some people are unethical because they want to act unethically. It may benefit them one way or another; or, as it also happens, it doesn't really benefit them, but they act this way because they always acted like that. (Examples of the latter behavior can be found in any ghetto.) Far more people act unethically because they have to. Is it ethical to take taxpayer's money in social security? For example, it isn't. But many do that because otherwise they would die. Or take another example. Is it ethical to come to the ER, be treated, and not pay? It is not; but those people have no money, and dying from appendicitis is a pretty painful way to go.
Note that unethical behavior is not always a crime - unless you want to extend criminal responsibility to evil looks, disrespect, spreading rumors under the threshold of libel, and such. Certainly you'd have also to extend this "crime" to making business decisions that favor one side and not the other.
First of all, criminalizing everything under the Sun would be a pretty drastic measure. I'll leave it at that, since obviously it's not going to happen, unless the regime of North Korea conquers the rest of the planet.
But another, and far more important observation, is that fairness is in the eye of beholder. Take the simplest example. Kathy has two candies. She also has three friends. Even assuming that Kathy is stoical enough to not eat all the candies herself, one of the three friends will be offended. A business environment is full of conflicts of this sort - not just between employees, but also between the employer and the employees, and between the customers and the employer, and between the government and everyone else. Business owners resolve those conflicts in a way that is legal, but not necessarily fair to everyone. (For example, a business chooses to pay its taxes instead of giving Jane a raise.)
The guitar seller's example is also a conflict. The VC can hurt the company but save the money of their investors; or the VC can leave the company alone and lose the investment. There is no clear dividing line of fairness. It's not like a certain VC is just naturally evil, and if you take care of that then it will be pink ponies all the way down.
This is what I mean by understanding the problem. No solution can be worked out until this understanding is reached for any given problem. What would be the options here, if I were the VC?
a) Do nothing. The guitar company continues the downward spiral, and at some not so distant future its bank account is zeroed. No money to pay rent, no money to buy inventory, no money to pay people. It's called bankruptcy. All the money is lost, along with the company. All employees are dismissed.
b) Ask for help. The VC assigns new, more experienced leadership to the company. Often that would be a specialist in salvage. The new manager researches the situation, determines what can and what cannot be saved, and acts accordingly. Profitable products are retained; unprofitable ones are sold off for a penny on the dollar. Some employees are kept as they are, other are retrained and kept, and the rest are dismissed.
c) As a variation of (b), the entire company is sold "as is" to anyone who is willing to clean the stables. From the POV of employees, there isn't much difference.
This is why I prefer to see the whole picture. If we were to attach labels, not only the VC acted unethically; it is also the guitar store managers, who for years continued to mismanage the business until VCs had to take note and act. I am very sure that were the store profitable, the VC would not even bother to think about them. The VC is not blameless either - they should have noticed the red ink way earlier; maybe just a different management, or even a consultant, could be sufficient at that time to turn the tide. But once the business is in a full nosedive into ground, there isn't much left to do but to gather the pieces in hope that something can be done with them.
(Score: 2) by sjames on Monday April 07 2014, @08:02AM
Referring to the first half or so of your post, none of the VCs involved here are in a survival situation. They are not starving and they are not in desperate need of medical care they can't afford. But some of them have put others in that situation.
The problem is people doing D, get in, strip assets ahead of legit creditors and then let it burn. In some cases, setting a company up to burn is part of the scam.
It's right up there with the various paper bankruptcies designed to shed pensions and then get right back to business.
Above board investors don't need the crazy structuring the worst of the VCs set up.
(Score: 4, Interesting) by bucc5062 on Monday April 07 2014, @02:39PM
OVerall his answers has been fairly reasoned if slightly favoring the independent owner. From what I gather he said:
1 - If you don't need help, don't ask for it - Sound advice
2 - If you need help then check, check again, and check a third time before agreeing because after that you are in a relationship for good or bad. It is okay to scream "abuser" when you are getting beat up, but it all teh signs before marriage said this person likes to beat up people, it is harder to gain long term sympathy. Better to not marry an abuser (in any type relationship).
3 - If you work for someone else, your options and your work life are not all your own, but for one, leaving - Again, honest statement.
Not all of us can be independent workers or business owners. Our society structure and economic model don't really provide a way for that to be, thus there will always be employers (customers) and employees (contractors). Even our guy here, working for himself really works for his customers and may have to make changes to what/how he does his job to keep customers happy and money flowing in. We all work for someone.
A way to rid ourselves or at least reduce the unethical actions of owners, investors, employers, is to reduce their power over time. Just say no when a VC wants to kickstart a cool project, just say no when FB wants to buy your company and you don't need to sell. Don't work for assholes any more. Harder would be to have rules in place that give more power to employees/contractors to fight back or at least have an advocate to ensure one is not taken. He is right that for Every visible Bernie Madoff, there are many others hidden in the wings. They are there because our Society has established Geko's phrase "greed is good" as constructive, when it is in fact destructive as a whole.
My one disagreement was with the idea that allowing a VC or PE to come in and "fix" things is good. It is not. If nothing is done the company folds, closes the doors and folks go on to find another job, but it is done in a slow motion process that allows for people to adapt. A PE coming will not be so kind as to give people time to change, they will force it upon them and in doing so, hurt more people then help. VCs may be nasty in their control, but in concept they are at the beginning of a process and can build up (though destroying the originator's dream along the way). PEs are carrion eaters. They are vultures and as one should be shut down as a threat to national security for they destroy, only to distribute wealth up, never down.
The more things change, the more they look the same
(Score: 2) by sjames on Monday April 07 2014, @11:13PM
Agreed on point one. Simple common sense.
For 2, we as a society need to push back on some of those abuses, kind of like in the analogy you drew, wife beaters are subject to arrest even if it should have been obvious before the marriage that they were wife beaters.
On point 3, yes. Our entire social structure places many people in harm's way as far as the crooked VCs and PE. That makes it society's duty to curb the problems. As you point out, the whole "greed is good" meme needs to go for a start.
That is where I disagree with tftp (or at least with what seems to be his underlying belief). They are not forces of nature that must be tolerated at all. They are people to be curbed.
(Score: 1) by tftp on Tuesday April 08 2014, @12:55AM
For 2, we as a society need to push back on some of those abuses, kind of like in the analogy you drew, wife beaters are subject to arrest even if it should have been obvious before the marriage that they were wife beaters.
I cannot object to enforcement of the law... but there is one philosophical catch. As the law expands to cover more and more of the territory that is "lawful but not very moral," it steals freedom from the people. One can say that nobody should be free to abuse others... and there is some validity in that argument; but who defines what abuse is? If you walk by and spit onto my driveway, is that abuse? Or if you park in my driveway? Or if you park, and when you leave there is a puddle of oil on the driveway, eating its way through the asphalt? Or if you just drive around the block at 3am, revving up the engine while listening to the music blasted by your 1 kW amplifier? Are those abuses? If yes, what would be the way to prevent or stop them?
Examples of that can be seen in many areas of the society. Regulation is generally useful, but sometimes the amount of red tape becomes so insurmountable that it makes no sense to go ahead with the plan. There is no good oversight of those regulations; the city or the county can prohibit you from building on your own property just because that's what the rules are - no matter how applicable the rules are to your specific situation.
So the fear here is that everything becomes so regulated that your life turns into a linear FPS-like game where you have only one path to take.
On point 3, yes. Our entire social structure places many people in harm's way as far as the crooked VCs and PE. That makes it society's duty to curb the problems. As you point out, the whole "greed is good" meme needs to go for a start.
Greed is not good, and it never was good. The meme was promoted by greedy people to justify their actions. Only honest work that benefits the society is good.
But the problem of crooked VCs and PE is wider than that. Any bully who grabs a kid and empties his pockets is guilty of the same crime. The problem is rooted in the fact that the current society is deeply immoral. Science fiction gives us examples of moral societies. ST:TNG is a pretty good example; the whole plot may be built upon a rare deviation from being honest and doing their best for the good of humanity. There are many other books that paint a similar picture. We are infinitely far from that ideal. As an exaggeration, if anyone is comfortable with throwing trash past the trash can, he is already well on his way to abuse of others. Or look at other examples that I provided above. What to do about that?
(Score: 2) by sjames on Monday May 05 2014, @06:18AM
Just found this tab still open. Better late than never I suppose.
If you walk by and spit onto my driveway, is that abuse?
More rude than anything.
Or if you park in my driveway?
Already illegal, you can have my car towed
Or if you park, and when you leave there is a puddle of oil on the driveway, eating its way through the asphalt?
If I parked w/o permission, you can take me to small claims for the cost of cleanup. If I parked by invitation, it's just part of cars parking.
Or if you just drive around the block at 3am, revving up the engine while listening to the music blasted by your 1 kW amplifier?
Already illegal. Very rarely enforced unless there have been complaints.
Is there some reason you feel a need to park in stranger's driveways in a broken down old heap, spit on their driveway and then wake them up at 3 A.M. ? :-)
However, I do agree that there are way too many regulations on the small stuff that really isn't anyone else's business. But I note that there are many more of those perpetrated by HOAs (perhaps there should be regulation on how much they can regulate?)
However, none of the misdemeanors you mentioned threaten your basic well being (except perhaps the last one if it happens often enough). None leave you wondering if you will be able to keep your house or what you'll do when the fridge is empty. None makes you wonder if you'll be able to find a job in a broken economy.
The real problems like wiping out pensions through carefully constructed debt and bankruptcy somehow managed not to be illegal in spite of the obviously greater harm. I can't imagine a case where outlawing that constrains any freedom a person should have (after all, the obligation for pensions was voluntarily offered and accepted in lieu of higher pay). Especially since at the same time we do make it illegal for a retiree to fit the perpetrator for a golf club in return.
(Score: 3, Insightful) by Dachannien on Monday April 07 2014, @02:40AM
From the sounds of it, you had a poorly managed company that overextended itself and racked up huge debts in a poor economy. Then when the bondholders come knocking for what's owed them, some random jerk on the Internet starts B&Ming about the bondholders rather than the poor company management.
Is that correct, or am I missing something here?
(Score: 3, Insightful) by Snotnose on Monday April 07 2014, @02:45AM
Sounds to me like Bain sucked the value out of the company, replaced it with a lot of nasty debt, and are now trying to pawn the husk off to some sucker (or smart 1%'er who needs the tax deduction).
God gives his toughest battles to his strongest soldiers. I am not one of them, please make it stop.
(Score: 0) by Anonymous Coward on Monday April 07 2014, @02:32PM
Nope. This is a self inflicted wound.
Management got the company in trouble and shopped around for someone to help them out of it. They took the best deal they could get rather than destroy the company. And it turned out that that was not enough to keep them afloat. Do you know who loses in this scenario? The bondholders in private equity. The "fat cats". The 1%. Do you know who wins? The consumer who gets to keep buying Korean firewood from Guitar Center. The employees, who get to keep their jobs. Middle management, who gets to keep their jobs.
(Score: 0) by Anonymous Coward on Monday April 07 2014, @08:35AM
It's obviously about modern poetry/word art. Just check out the rambling indecipherable opening sentence:
Syntax errror, does not compute. Even master Yoda couldn't figure that out!
(Score: 1) by tomtomtom on Monday April 07 2014, @10:20AM
I couldn't understand what he was complaining about either. But I *think* he is trying to make (although he does a poor job of it) the point that "complexity" in credit/private equity markets is creating an agency problem (Other People's Money being put to work at higher risk to generate fees for managing that money). (By the way, I think that's the wrong conclusion to draw from this story).
When I first saw the summary I assumed he must have somehow been affected as a consumer; perhaps he had paid a deposit to them and this got wiped out in a bankruptcy in favour of secured or otherwise more senior creditors or something. That would be something to get upset about if it had happened, especially given that there is often limited information available to average consumers for them to conduct due diligence on such firms. Or perhaps as a result of a bankruptcy an unprofitable local store had to be closed which he would like to be a customer. Again, a legitimate concern (especially if the bankrupcy code wouldn't permit an alternative to be easily sought where it stayed open).
But that's not it. One of their lenders took a debt-for-equity swap (on a loan made at the height of the boom in 2007, it has to be added) and now controls the company. How exactly this affects him as a customer is not explained. Ignoring the long and rambling discussion of how he doesn't understand what sounds like a pretty normal private equity fund setup, he then hits upon the idea that we are in a similar environment to 2007. He seems to think this is because of "the 0.1%" creating complexity to deliberately skim fees.
But that's totally wrong. These are bonds which people *know* are risky, being bought by funds whose investors *know* they are taking a considerable degree of risk on. The reasonable argument which could be made based on this fact is that very low interest rate policy is encouraging investors to engage in a search for yield, and as a result, investors are potentially over-allocating investment to higher-risk categories or companies. Instead he ends up saying "so the financial industry are parasites" with no real justification.
(Score: 2, Informative) by Anonymous Coward on Monday April 07 2014, @12:05PM
There are three steps to this process, and the blogger is describing a company at stage two.
Stage one is The Offer They Can't Refuse, wherein private equity buys an independent company. They do this by offering so much more money than the company is "worth" that the owners can't rationally refuse. Often, this is because the company has had a couple years of poor sales or a bad cost structure. Rarely is this because the company has a lot of debt. The last bit is important because the newly acquired company will pay back The Offer by taking on debt. Essentially, during Stage One, the acquired company purchases itself by going 100+% into debt to the private equity firm. The private equity firm now owns the equity in the company and (usually) the debt as well.
Stage Two is The Selloff. This may take a few years: the acquired company continues to operate and the buyer does whatever it can to polish the books: fire staff, find cheaper product sources, sell off assets. At this point, new debt is issued - this time not to the purchasing company but to the public market. The new debt is used to pay off the old debt, effectively transferring the cost of The Offer out of the purchasing company, who now have no real risk of loss.
Stage Three is Bankruptcy. Having made all the short-term profit padding choices, and potentially having destroyed the consumer reputation of the acquired company, financial performance goes into rapid decline, possibly slowed by selling off "underperforming" stores and assets. In short order, the acquired company reorganizes or closes. The public bond holders end up with pennies (if anything). The purchasing company may or may not retain control of the acquired company, but it hardly matters: they made their real profits at Stage Two.
The blogger is mad because a store he used to love, a place that sold the gear of his own personal passion, is in stage two. Consumer reputation in a downward spiral, but the financial results still good enough that Bain can dupe a bunch of pension funds to buy that debt. He's sad because he knows the store that fed his passion is already a sad shell of his memory and is inevitably going to close. It's like watching Adafruit turn into Radioshack. Or maybe like watching slashdot turn into Dice.
(Score: 1, Interesting) by Anonymous Coward on Monday April 07 2014, @03:07PM
There's a flip side to this: Guitar Center is a big-box retailer who swallowed up or put out of business a lot of Mom-and-Pop operations. It's the Wal-Mart of their niche market, and, while that may decrease prices for the end consumer, it doesn't increase quality. The demise of Guitar Center could open up the market for smaller, local businesses who can make genuine connections with their customer bases (service quality would be their biggest draw). That could be better for employment and for musicians.
(Score: 3, Interesting) by SacredSalt on Monday April 07 2014, @03:25AM
Music stores have survived this calamity before. Except the prior problems were corporate raiders of instrument companies (Aka CBS buying Fender). We have had a mini version of this problem. Remember Mars? No? They weren't around long enough for the full calamity, they were so over leveraged they had to sell at a loss just to keep the lights on the last 6 months. Guitar Center set a price point on the cheap stuff with the manufacturers that only left a tiny profit margin. The makers pretty much moved all production (except for a few quality lines) from Korea, Mexico, and Japan to China. China can make quality if you are willing to pay for it, but the margin was too low to pay for quality. You can walk down the isle at a guitar center and find row after row of pretty, but instruments that need a lot of work to really be as playable as their new counterparts in the early 90's.
Mars & Guitar Center put a lot of stores out of business. Mars went bye bye, but the trend continued. Enter Ebay (where sadly almost all Pawn Shop guitars go now), Craigslist, bigger proliferation of the catalog stores (Musicians Friend, AMS). The mom and pop shops are very few indeed, and though some of them do focus on quality its a little off putting to the uninitiated guitar player when they go pick up $1500 G&L and its cheapest guitar in the store (it just happens to be playable form the factory).
Its going to take awhile for this situation to improve, and in some ways it never will. The prices at local smaller stores are going to be higher. Simply because people will turn to the catalogs and online stores to buy a lot of their accessories (stands, picks, instrument cables, amplifier cables, XLR cables, microphones) rather than picking it up locally. Those small items may not seem like much, but being intimately familiar with the finances and friend of owner of Scotty's music, those little items were a huge part in keeping the lights on.
(Score: 2) by egcagrac0 on Monday April 07 2014, @09:31AM
Coming from the camera store world, I can agree with this.
People got "excited" about camera and lens sales, but the margins weren't great. The saying went "filters are the bread and butter" - there's a healthy margin there, and people could buy them pretty regularly. (6 point star filters were especially popular for Christmas lights.) If we had to price match one of the big mail order (or online) shops on a camera, we'd typically make as much profit on a couple of filters as selling the camera.
(Score: 5, Informative) by tathra on Monday April 07 2014, @04:47AM
I thought that everyone had known for years that Mitt Romney's millions came from doing exactly this and worse - obtaining companies, liquidating and pocketing the assets, then taking out a loan against the company's value and pocketing it, and then bailing, leaving everyone else to pay for the loan.
seriously, how is it surprising that Bain Capital is doing exactly what they've always done?
(Score: 1) by Zz9zZ on Monday April 07 2014, @05:17AM
Its surprising and eye opening for those who are not in the know. Technically very little in the universe is surprising when you know the backstory. Its part of the reason why the world has been rocked by the Snowden docs while this community in general just nods in confirmation...
I guess my response here was sparked by wanting to not downplay these types of events as "par for the course" even when it is.
~Tilting at windmills~
(Score: 0) by Anonymous Coward on Monday April 07 2014, @03:08PM
Don't forget about bleeding the company's coffers by putting their members on the board of directories or getting paid consulting fees for how to to 'turn around' the company.
(Score: 3, Insightful) by Hairyfeet on Monday April 07 2014, @09:28AM
Unless you abuse the shit out of them. My newest bass? a 6 year old acoustic I picked up off of CL, the electrics are from 1984-1997, we are talking 20+ years and other than the occasional pot change they are going great, same goes for my Trace amp where $150 cap replacement made it sound like new even though its going on 20 years.
Would I like new toys? Sure but the economy is a corpse and its not gonna get better and with gas at $3.25 a galloon and rising? Just don't have the disposable income. and the B&M music stores can't compete with online, the cheapest I could find a hollowbody electric guitar for my dad locally was nearly $400 whereas for $159 I got this sweet sunburst [amazon.com] that reminds him of his favorite early 60s Silvertone he had in the 70s. It plays great, sounds good (pickups a little weak but he's never gonna be cranking the volume so who cares) and I couldn't beat the price.
As for Bain of humanity? The collapse IS coming and when it comes they better "get to teh choppa!" because I have a feeling we may get as nasty as our French brothers did with their aristocrats. The top 1% have become leeches on the ass of society, using their wealth to bleed ever more profits through games like HFT, but the time will come when the leeches get removed from the ass of the world and I have a feeling its coming soon. Hell even China is swimming in debt trying to keep an economy going with no customers, its not gonna be long now, probably less than a decade.
ACs are never seen so don't bother. Always ready to show SJWs for the racists they are.
(Score: 2) by khallow on Monday April 07 2014, @02:38PM
I think the author has the right general idea. But a company like Guitar City doesn't get bought out by Bain Capital just because. As "vulture capitalists", they prey on companies that are failing. I'd consider them more the clean up crew of parasitic capitalism. Someone else already extracted or destroyed a bunch of the value of the business and at this point, the options for the business aren't going to be that good. The author's suggested boycott is way too late and that's assuming that Bain's takeover happened now rather than when it actually happened in 2007.
He also thinks that the parasites are willing to sacrifice profit for economic domination. I don't think that's even a choice they have to make. Most of the money used to make such decisions is other peoples' money. That's where the true parasitism lies. If I'm given a billion dollars by someone, it's not that hard to turn it into say, nine hundred million dollars while simultaneously making myself richer by a few tens of millions. The economic domination, such as it is, comes from obtaining control of the initial wealth, not the clever decisions made with that wealth.
To me the obvious answer (at least for anyone who can't change government policy) to large business domination of the sort claimed here is creation and support of new, productive businesses. Even if they get bought out, that's wealth transferred from the parasites to people who actually can do productive things. Lather, rinse, repeat.
Finally, the guy is promoting some unknown thing he calls "transition economics" where inner city economies, especially the worst of the worst, like Detroit and Saint Louis, get transformed into something moderately useful. Currently, there are stretches of land so cheap in Detroit that they're considering turning them back into farm land (with a present value of $3,000 per acre or roughly $750k per square km. If that could be boosted to the price of good, urban land, say $100k per acre, then they just made almost twenty million per square km before adding in the value of other development of the land.
But those areas didn't get that bad just because the car industry turned south in the 70s. They got that bad due to massive economic parasitism which is still there, entrenched at the local government level. So my view on these locations is that they suck to live there and if you do turn things around, you'll still pay a substantial premium of at least several percent of assets (that's just the property tax difference [lincolninst.edu] in Detroit) over the popular places now because of who's in power.
(Score: 1) by Rune of Doom on Monday April 07 2014, @05:05PM
We need to change our laws and our society so that *things* like Bain Capital cannot exist.