Guitar Center agrees to $1.9bn private-equity buyout

Guitar Center Inc., the largest chain of musical instrument retailers located throughout the United States, has agreed to be acquired for $1.9 billion by affiliates of Bain Capital Partners LLC, turning the month-long speculation of possible sale into reality.

The Westlake Village, California-based largest U.S. musical instrument retailer said that the board has unanimously approved the merger agreement, and it has hired investment bank Goldman Sachs & Co. to auction the company.

Bain Capital’s offer price to Guitar Center shareholders, i.e. $63 per share in cash, is pitched at a 26 percent premium to GC’s closing price of $50.06 on June 27. The takeover bid would reach nearly $2.1 billion after addition of GC’s debt worth $200 million.

Although, the deal has been approved by the Guitar Center board, it still requires approval of GC shareholders. The deal is expected to close in the fourth quarter.

After the acquisition, Bain Capital would continue to work with Guitar Center's management team to build the business, said Jordan Hitch, a managing director at the Boston-based private equity firm.

"As the leading retailer of musical instruments in the U.S., Guitar Center enjoys great brand recognition among musicians nationwide, a loyal customer base, and a track record of significant growth," said Hitch. "We look forward to working with the company's experienced and capable management team to continue to build the business."

Guitar Center shares jumped $9.92, or 19.82 percent, to $59.98 Wednesday on NASDAQ, after hitting a 52-week high of $60.35 during trading.

According to Marty Albertson, Guitar Center chairman and chief executive, GC’s merger with the private equity firm "is a strong validation of the company's accomplishments over the years as well as our future growth prospects."

Founded in 1959 by former car salesman Wayne Mitchell, Guitar Center is the leading retailer of musical instruments in the United States, selling guitars, amplifiers, percussion instruments, keyboards, and professional audio and recording equipment.

The company, which employs nearly 10,000 workers, operates about 200 stores in some 40 US states. The retailer also operates more than 95 Music & Arts stores, which sell and rent band instruments as well as a Musician's Friend Inc. unit which sells musical instruments via catalogs and websites.

Guitar Center reported revenue of $2.03 billion last year, a six-fold increase since it went public in 1997. The revenue was $296.7 million in 1997. The US retailer posted first quarter profit of $17.2 million, a 9.7 percent increase from a year earlier, as sales soared 14 percent to $534.5 million.

In February this year, Guitar Center acquired bankrupt musical instrument retailer Woodwind & Brasswind for about $30 million. In 2005 it bought Music & Arts Center, which sells and rents oboes, trumpets and other school-band instruments to students and teachers, for $90 million.

Bain Capital Partners, which currently has about $50 billion in assets under management, holds major stakes in a range of companies including Warner Music Group Corp., Toys "R" Us Inc. and Burger King Holdings Inc. It has invested or bought more than 240 companies since its founding in 1984.