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Iconic American guitar company files for Chapter 11

On Behalf of | May 10, 2018 | Chapter 11 |

Among the most iconic brands in pop and rock music is Gibson Guitars. The 114-year-old company makes musical instruments including guitars used by legendary musicians that many Tyler residents instantly recognize, such as Chuck Berry, B.B. King, Jimmy Page, Slash and the Edge, among practically countless others. The company also expanded into consumer audio in recent decades. Today, the company blames that move in part for its decision to file for Chapter 11 bankruptcy.

As the 1990s and 2000s saw more artists turning away from guitars and into the digital realm, large instrument makers like Gibson felt the pinch. Their response was to acquire a number of companies that made consumer audio equipment in an effort to become known as more of a lifestyle brand. From 2010 to 2015, the company’s revenue increased from $300 million to $2.1 billion. However, at the same time, its profit margins slipped from nearly 13 percent to just 4 percent.

The debt Gibson took on in order to make those acquisitions eventually became unsustainable. The Chapter 11 filing will allow Gibson to shed unprofitable divisions and return the emphasis to its traditional musical instrument business. It still has a significant share of the electric guitar market and has even seen a bump in profits over the past year-and-a-half. With major creditors expressing their support, Gibson anticipates a successful transition.

While this example illustrates how a major company can use Chapter 11 to its advantage, this form of bankruptcy protection can work for small businesses in Tyler just as well. Perhaps a particular business decision or strategy didn’t work out like it was supposed to, or perhaps market conditions changed in a way to which a company was not able to adapt in time. Chapter 11 can provide the fresh financial start that many businesses facing financial challenges need in order to restructure and return to competitiveness in the marketplace.

Source: USA Today, “Gibson guitar maker files for Chapter 11 bankruptcy protection,” Nathan Bomey and Nate Rau, May 1, 2018