Bringing you news of successful exits in the sector
Fund: Guinness AIM EIS Fund 2015
What does the company do?
Gear4music is a UK based online retailer of musical instruments and music equipment, operating from an office, showroom, and distribution centre in York. The company offers over 1,500 products, which are sold under approximately eight brands, including Gear4music; Archer, which offers string instruments, such as violins, cellos, violas, and double bass; Redsub, which offers bass guitar amplifiers and pedals; SubZero, which offers guitars, amplifiers, mixers, speakers, and audio electronics; Minster, which offers digital pianos; Rosedale, which offers woodwind instruments, such as clarinets, flutes, oboes and piccolos; and Brass Instruments, which offers trumpets, trombones, tubas and French horns. Gear4Music sells own-brand musical instruments and music equipment alongside premium thirdparty brands to customers ranging from beginners to musical enthusiasts and professionals, in the UK and into Europe.
Having developed its own e-commerce platform, with multilingual, multicurrency, and fully responsive design websites covering 19 countries, the group rapidly expanded its database continues to build its overseas presence while the company’s main country of operation is the UK.
What did the company invest the money in>
The investment was part of an £8 million combined EIS/VCT and non-EIS fundraising to develop an e-commerce platform and provide growth capital to accelerate marketing initiatives including a new London showroom and to repay £4.4 million of loan notes owing to the original investors in the business.The company has expanded sales from £24 million in the year to 28 February 2015 (on which it made pre-tax losses of £750,000) to £80 million in 2018 (on which it made profits of £1.4 million).
How much was raised?
Guinness AIM EIS Fund 2015 invested 5.6% of the scheme into Gear4Music in May 2015. Gear4Music raised £8 million in a combined EIS/VCT and non-EIS fundraising round.
How was the exit achieved?
The shares were traded out through the market.
How much was returned to investors?
In June 2018 the shares were trading around £7 per share and on a price/earnings ratio of over 100x. At that time, Guinness formed the view that the company needed to perform extremely well to retain such a high rating and could be vulnerable to any real or perceived deterioration in its trading outlook. It therefore decided to trade the shares out through the market netting a profit of over 5x the original investment which being part of an EIS scheme and having been held for over three years is tax-free to investors and was returned to them earlier this year.
What other benefits has the company provided?
The company now employs over 310 people (2015:103 employees) and has successfully expanded European and rest-of-world sales to around £40 million since the 2015 funding. The company has fulfilled the ambitions and aspirations it held at the time of its initial public offering in 2015 and the growth pattern for the company remains intact.
Gear4Music could be considered the ‘poster’ investment for Guinness AIM schemes and for the Government’s growth agenda for EIS companies. Its business plan was easy to articulate, well-timed, and achieved organically and without further recourse to capital markets. Management under Andrew Wass was relatively young and clearly energetic, and committed. It had assembled an appropriate board with an experienced chairman whom Guinness already knew. All in all there was, and remains, a lot to like in Gear4Music and it has fully repaid our confidence. Would that all such investments were as satisfactory!
In conclusion, Gear4Music is a growth story which has played out well for all stakeholders and continues to do so and it is the sort of company with a substantial insider shareholding which is using the AIM for all the right reasons and demonstrates the success of this market as a source of capital for good and ambitious companies.
How will you continue to support the company?
There have been no further capital raisings or acquisitions since the original investment by Guinness.