Bain Capital buys Guitar Center

Aug 01, 2007 9:30 PM  By

Private equity giant Bain Capital in late June acquired multichannel marketer Guitar Center. Under the deal, which is expected to close in the fourth quarter, Guitar Center shareholders will get $1.9 billion in cash, or $63 a share. The transaction value, including assumed debt, is approximately $2.1 billion. The formerly public Guitar Center will now be privately held.

Guitar Center has 198 Guitar Center stores, and 97 Music & Arts Center stores. Its direct division includes print catalogs Musician’s Friend and The Woodwind & the Brasswind. Direct sales rose 7% to $391.7 million last year, from $365.1 million in 2005.

Since 1984, Bain Capital has made private equity investments and add-on acquisitions in more than 240 companies, including Toys ‘R’ Us, Burlington Coat Factory, and Staples. Just a week before buying Guitar Center, Bain, along with The Carlyle Group and Clayton and Dubilier & Rice, purchased the HD Supply business from Home Depot for $10.3 billion.

The multiple Bain paid for Guitar Center is a 12.1 times earnings before interest, taxes, depreciation and amortization (EBITDA), says David Solomon, co-CEO of New York-based investment bank Goldsmith Agio Helms, “and is quite attractive for a tier-1 property in its space.”

Lee Helman, managing director at New York-based investment bank Financo, says Guitar Center is a great growth vehicle for Bain Capital. Guitar Center has proven that it can grow organically and also make and integrate acquisitions. Typical of private equity firms, Helman expects Bain to grow its investment with add-on acquisitions to ramp up sales for three to seven years and either take it public or sell it.