Guitar Center IPO Strikes Right Chord

Guitar Center Inc. shares increased 20% on their first day of trading Friday, with the Agoura Hills retailer becoming the first publicly traded seller of musical instruments.

Priced on Thursday night at $15 a share after the market dropped 160 points, the stock rose to $18 a share in Nasdaq trading Friday as the market steadied.

Institutional demand was strong, with major pension and mutual funds buying shares, said Eric Schwartz, a managing director in New York with Goldman, Sachs & Co., lead manager on the $101-million initial public offering.

The 50-year-old Guitar Center, with stores throughout California, plans to use proceeds from its IPO to pay down debt and add 16 stores in the next two years.

“People weren’t buying this because of so-called California dreaming. This was a very strong national retail play,” said Schwartz.

Because of market conditions, bankers considered pulling the IPO on Thursday night and selling at a later date but made the decision to go ahead.

“It wasn’t easy yesterday,” said Schwartz on Friday. “But we are very pleased with the outcome.”

The IPO market has cooled this year as small-cap stocks are struggling. The Russell 2000 Index, considered by investors to be the best measure of performance of smaller companies, has risen 0.5% this year, less than the Standard & Poor’s 500 Index’s 8.6% gain.