Henry went shopping again....

[st.bede]

Phillips was a Dutch company originally. It made decent audio products back in the day. They also with Sony are the ones who developed the audio compact disc ( CD ). I refuse to post out of my ass about Henry or Gibson without knowing what is really going on myself.

With that standard, I would have to go a delete about 50% of my post.

 

[HenryHill]

Well, I feel a bit worried. I can only point to my intuition and a couple of Gibson's strange attempts at new guitars.

I was hoping that this thread was about HenryHill buying something cool. To keep my hope, I will just pretend that HenryHill bought all this, for cheap, at a cool yard sale:

The printer arrived.

But that is a cool pic.

 

[st.bede]

The printer arrived.

But that is a cool pic.

I wanted to find something with a bunch of old synths also, but just looking at that pic make me happy for you, in my fear produced state of denial.

 

[Howard2k]

I had a Philips 'Walkman' as a kid. I also had TEAC cassettes. Both certainly middle of the road brands!

 

[stinkfoot]

let's see.. add some new corksniffer terminology to the description, slap on a Gibson logo and walah, you have a $3000 dollar DVD player..

 

[Leendrix]

When I think of Gibson, I don't think of "that guitar company that also produces surround sound stereo sets".

 

[Tone deaf]

I find it interesting that Gibby would by faded, mass-market electronics brands. I think that the fact that Henry can come up with $135 million is a good sign regarding the general health of the company (it's private so they don't officially publish numbers). I find it remarkable that Philips' (one "l") home entertainment biz is only worth $135 million. I'd wager that a 'few' years ago, Philips probably valued this segment at over $1B.

If I had to guess, I'd say that international distribution is a big part of the impetus to purchase with an eye to mass distribution of Epiphone and Maestro lines as well as Gibby to folks around the world.

 

[roeg]

In todays world,can any company survive without a broad income base?Back in 1984,when The Gibson company was on the block(Norlin),it went for,if memory serves correctly,8 million.It might have been even less.I've heard 10/11 million too.

There was speculation at the time,because Gibsons were selling so poorly,that the fire sale price was an unloading of a company on the way down.Sales bear this out(10 million in sales,1984?)But it stayed american owned,and great Lespauls and other Gibsonslaugh2 started to come out.The company could have just as easily been bought by a foreign multi-national that could have split Gibson up for firewood.

.
I'd rather some rabid,neurotic Lespaul/gibson aficionado than some multi-national baby food corporation(my opinion) that would run another fine old american company into the ground.Consider ourselves lucky.

add: Gibson was purchased for 5 million,according to the NY Times.

Read the NY Times link below.A 20 yr old article,but Henry is still Henry.Thankyou.He seems to have done pretty good...so far.


http://www.nytimes.com/1994/03/13/b...e-musical-scrap-heap.html?src=pm&pagewanted=1


Saving Gibson Guitars From the Musical Scrap Heap


By BRYAN MILLER
Published: March 13, 1994

 

[Danelectro]

I have worked for a couple of companies that were making money with their core products but felt the need to expand and diversify into other product lines. Both got in over their heads and declared bankruptcy within a few years.

 

[dewie1975]

I find it interesting that Gibby would by faded, mass-market electronics brands. I think that the fact that Henry can come up with $135 million is a good sign regarding the general health of the company (it's private so they don't officially publish numbers). I find it remarkable that Philips' (one "l") home entertainment biz is only worth $135 million. I'd wager that a 'few' years ago, Philips probably valued this segment at over $1B.

If I had to guess, I'd say that international distribution is a big part of the impetus to purchase with an eye to mass distribution of Epiphone and Maesto lines as well as Gibby to folks around the world.

What he said. If HJ were such an idiot as everyone seems to believe, The Gibson company would cease to exist today and no one would buy any LP's manufactured post 1985.

 

[Tone deaf]

Henry knows what he's doing, he has an MBA you know....

He happens to mention it at every opportunity.

I like to scoff at MBAs, too (myself included). Feeling the need to constantly state and reinforce one's credentials is a sign of insecurity but, not necessarily a lack of ability. If I were Henry, and felt the need to state my bonefides, I'd mention the fact that the company, which was near death when he took over, is rocking and rolling - better than ever (once or twice per paragraph).

Mass production and distribution of the lower-tiered products is much easier than trying to put flagship-brand Gibbys into every guitar stand, around the world. The flagship comes with onerous dealer commitments and a much higher price point (although the LPJ, Specials, Jr's and other models are attempts at getting the Gibby brand into the hands of folks looking for an axe at an Epi price). The other major factor is price, especially when opening up international markets.

Price, generally, is determined by supply and demand. However, manufacturers have to sell at a price that exceeds their all-in costs (including tariffs, doodies (that is a pun) and other cross-border logistical costs), in order to make a profit. So a new Gibby will run considerably more in foreign markets than in the USA. Just ask the MLPers from outside the USA about guitar prices. Used guitars in many parts of the world trade on the secondary market (i.e. the purchaser isn't the original buyer getting the guitar from the dealer) 150-200% of what we pay in the US. If a 20 year old Ibanez CT-Series can sell for US$400 in Buenos Aires, what can Henry get for a new Maestro or Epi?

I imagine that there are two other things in the acquisition that attract Henry: cash flow and some x-factor (unique thing that he thinks will be valuable). The first one is easy. Philips is a giant. Their top customers spend more than $135 million, annually, with the company. This division has become a sixth toe, it is superfluous and more of a bother than it is worth (to them). So they want to get rid of it. I am sure that they are willing to sell it at a very reasonable price when compared to the cash that it will generate for the new owner, over the next five years. The hard thing for many folks to fathom is that they will happily sell it for less than it "theoretically" is worth because it gets rid of a nuisance and their investment bankers (who get paid upon closing the deal) give them enough cover to get the deal done and 'protect' them on the fiduciary duty part of the equation. That means that the buyer can get lots of cash flow at a low price.

The value of the acquisition itself, I am sure more than covers the $135 million price tag, most of which I would assume is borrowed. I'd guess that the cash flow is in the $30-40 million ball park (avg over the next five years, I assume that the cash flow is probably dropping 10%, or more, annually). Gibby and friends probably put up 10-20% equity (hard cash) and borrowed the rest. The interest rate is probably 5-8% (depending upon multiple factors). So on a loan of about $108-121 million (amortized over 7 years) to acquire $30 million of cash flow, the company will net (avg over the five years) $3-6 million of incremental cash flow per year.

 

[Tone deaf]

I went off on a tangent in the previous post. On the subject of an MBA degree, it is just vocational training to develop specific skills and build connections. If you are a self-absorbed dolt, you're likely going to lack vision, hubris and other qualities that help successful business people to get to the "top" and stay there. It is like training someone to be a marksman but, if he can't tell the good targets from the friendlies he is as useless as TOAB.

 

[dewie1975]

I like to scoff at MBAs, too (myself included). Feeling the need to constantly state and reinforce one's credentials is a sign of insecurity but, not necessarily a lack of ability. If I were Henry, and felt the need to state my bonefides, I'd mention the fact that the company, which was near death when he took over, is rocking and rolling - better than ever (once or twice per paragraph).

Mass production and distribution of the lower-tiered products is much easier than trying to put flagship-brand Gibbys into every guitar stand, around the world. The flagship comes with onerous dealer commitments and a much higher price point (although the LPJ, Specials, Jr's and other models are attempts at getting the Gibby brand into the hands of folks looking for an axe at an Epi price). The other major factor is price, especially when opening up international markets.

Price, generally, is determined by supply and demand. However, manufacturers have to sell at a price that exceeds their all-in costs (including tariffs, doodies (that is a pun) and other cross-border logistical costs), in order to make a profit. So a new Gibby will run considerably more in foreign markets than in the USA. Just ask the MLPers from outside the USA about guitar prices. Used guitars in many parts of the world trade on the secondary market (i.e. the purchaser isn't the original buyer getting the guitar from the dealer) 150-200% of what we pay in the US. If a 20 year old Ibanez CT-Series can sell for US$400 in Buenos Aires, what can Henry get for a new Maestro or Epi?

I imagine that there are two other things in the acquisition that attract Henry: cash flow and some x-factor (unique thing that he thinks will be valuable). The first one is easy. Philips is a giant. Their top customers spend more than $135 million, annually, with the company. This division has become a sixth toe, it is superfluous and more of a bother than it is worth (to them). So they want to get rid of it. I am sure that they are willing to sell it at a very reasonable price when compared to the cash that it will generate for the new owner, over the next five years. The hard thing for many folks to fathom is that they will happily sell it for less than it "theoretically" is worth because it gets rid of a nuisance and their investment bankers (who get paid upon closing the deal) give them enough cover to get the deal done and 'protect' them on the fiduciary duty part of the equation. That means that the buyer can get lots of cash flow at a low price.

The value of the acquisition itself, I am sure more than covers the $135 million price tag, most of which I would assume is borrowed. I'd guess that the cash flow is in the $30-40 million ball park (avg over the next five years, I assume that the cash flow is probably dropping 10%, or more, annually). Gibby and friends probably put up 10-20% equity (hard cash) and borrowed the rest. The interest rate is probably 5-8% (depending upon multiple factors). So on a loan of about $108-121 million (amortized over 7 years) to acquire $30 million of cash flow, the company will net (avg over the five years) $3-6 million of incremental cash flow per year.

I like the way you think Tone Deaf.

 

[martin H]

This would make more sense if Gibson was a company that had a really good record in the successful use of new electronics technology.......

 

[HenryHill]

This would make more sense if Gibson was a company that had a really good record in the successful use of new electronics technology.......

Nah, Henry's got his finger on the pulse of what people want in electronic technology. Remember, he's an MBA.

 

[chad kennith]

Shouldn't they just stick to making guitars with mini-tuners. Gibson Brands Announces Agreement to Acquire Philips

 

[Kamen_Kaiju]

"The music and audio lifestyle arena. "

... funniest thing i read all day

 

[stinkfoot]

"The music and audio lifestyle arena. "

makes me wonder if HJ is one of those audiophile nuts we used to make fun of back in the day..

I bet he has a closet full of those special "oxygen infused" audio cables and power cords..

 

[Tone deaf]

makes me wonder if HJ is one of those audiophile nuts we used to make fun of back in the day..

I bet he has a closet full of those special "oxygen infused" audio cables and power cords..

I bet he does and I bet he doesn't own a single piece of Philips brand gear. I'd think that he is more of a Conrad Johnson, Thorens and Revel man in his own home. You need to make sure that your gear isn't so esoteric that regular folks don't realize how much money you spent on it.

I'm more of a Jolida, (vintage- nice way of saying 'old') Perpetuum Ebner (the true quality behind Dual) and Soliloquy (out of biz but still awesome) kinda guy. FWIW, I make my own cables and am more than satisfied with all the money I save by not believing all the wire BS.

 

[jpftribe]

.....

I imagine that there are two other things in the acquisition that attract Henry: cash flow and some x-factor (unique thing that he thinks will be valuable). ......

The value of the acquisition itself, I am sure more than covers the $135 million price tag, most of which I would assume is borrowed. I'd guess that the cash flow is in the $30-40 million ball park (avg over the next five years, I assume that the cash flow is probably dropping 10%, or more, annually). Gibby and friends probably put up 10-20% equity (hard cash) and borrowed the rest. The interest rate is probably 5-8% (depending upon multiple factors). So on a loan of about $108-121 million (amortized over 7 years) to acquire $30 million of cash flow, the company will net (avg over the five years) $3-6 million of incremental cash flow per year.

I find the acquisition fascinating, mainly because to me it makes little sense. I hear you on the numbers. Philips annual report has this division generating 130M Euro of positive cash flow in 2012 and a negative cash flow of 68M Euro in 2013. So Henry is betting 2013 was an anomaly, and likely there is a lot of obscurity as Philips had to spin this off after a failed deal with Funai. He is also betting that cash flow is sustainable over many years, and that is an interesting bet in the consumer electronics business.

Even when it generated cash, it was making little money, and unfortunately, they don't break out sales or revenues. Balance sheet showed 447M euro in assets in Q1 2014. So maybe there is some IP there worth something, or the dumping ground for non-performing assets from the parent.

I don't get what this has to do with Gibson brands, unless the strategy is to accumulate small off brands and milk margins off them, like Onkyo and TEAC. That seems a risky play in consumer electronics. Also think it sends a message that the instrument business is done in terms of growth.