Is Gibson In Financial Trouble?

There are signs that Gibson's move to diversify isn't working out as planned. Moody's Investor Service has downgraded Gibson Brands (formerly Gibson Guitar Corporation) credit to junk status, and according to reports, the company has put up two of its Nashville warehouses for sale as a result.

Moody's gave 3 reasons for the downgrade:

   1. "Weak operating results" as a result of a poor reception to the company's 2015 guitar line.

   2. Frequent management changes in its finance department.

   3. The company's recent move into consumer electronics and the associated risks of doing so.

Starting in 2012, Gibson began to buy consumer electronics company like Onkyo and Teac. Prior to that, it had purchased the Stanton Group, which included Cerwin-Vega, Stanton DJ and KRK. In 2014 the company acquired Woox, a Singapore-based company specializing in consumer electronics accessories.

According to an article by Ted Green, this most recent acquisition left the company over-leveraged and the company is facing $100 million in payments over the next 22 months. Speculation is that the company doesn't have the cash to make these payments, which is the reason for the sale of the two Nashville warehouse properties.

Gibson has done a number of business maneuvers in the last few years that have been head-scratchers, but the fact of the matter is that the company is trying to grow by expanding beyond MI. The problem there is that unless you know the other markets well, it's very difficult to play in the land of the really deep pockets. Let's see what happens over the next few months.

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What Gibson Buying Stanton Means

Gibson Guitar has announced in a press release that they’re acquiring the Stanton Group, which includes the well-known Stanton DJ brand, KRK monitors, and Cerwin-Vega loudspeakers. Gibson already has acquired Epiphone, Dobro, Kramer, Steinberger, Tobias, Echoplex, Electar, Flatiron, Slingerland, Valley Arts, Maestro, Oberheim, Baldwin, Sunshine Piano, Take Anywhere Technology, J&C Fischer, Chickering, Hamilton,  and Wurlitzer. So aside from Epiphone, when was the last time you hear anything from most of those products?

What's most interesting about the announcement is that Gibson calls this move is “part of its continued expansion as a lifestyle brand.” I guess my question is, "How does Stanton fit into that vision?" I understand that Gibson CEO Henry Juszkiewicz would like to be more like Apple, but buying a group that features DJ and speaker products isn't exactly a great start in that direction. Plus, with Gibson's track record of instantly burying a company as soon as they buy it, it seems like a moot point anyway.

It would be great if Gibson would just concentrate on the thing they do best, making guitars, but they're not doing so hot on that front either. The robot guitar, digital guitar and Firebird X all had the industry and players alike scratching their heads. One again, it seems like market share and acquisitions mean more to the Gibson powers-that-be than increasing efficiencies on its core product and making better instruments. As outlined in my article about Warner Music Group on my Music 3.0 blog today, music and big money usually don't mix. You have to make a profit to stay in business, but the turning point is when the business becomes more about money than music, and that leads to trouble.

So say goodbye to the Stanton Group - Stanton DJ, KRK and Cerwin-Vega. It's only a matter of time before they disappear.

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