Uh-oh! Fender files for IPO

Dave W · March 08, 2012, 12:56:50 PM

This is the first time I've seen mention of who holds the shares, or the amount of debt and recent profits and losses. It doesn't look like they are in that bad a shape, but not that good either.

Fender going public

Maybe someday your pre-IPO Squiers will be worth thousands.

Seriously, quality might suffer with shareholders looking for short term gain.

Denis · March 08, 2012, 01:20:22 PM

I'm surprised they need the money as much as they charge for their instruments, especially the US models. Even the MIMs have increased in price a lot the past few years. It might be a good thing at the outset, because most of Fender's instruments are pretty nice. It's a slippery slope though, when shareholders want more and more out of the company and in their pockets.

Dave W · March 08, 2012, 10:10:58 PM

They are 43% owned by Weston Presidio Capital. That was a surprise to me. The article says they plan to use $100 million of the $200 million IPO to retire debt. Okay so far.

But this Forbes article goes a lot further: Their total debt load is $246 million and most of it is due in June 2014. Not good. And the ownership breakdown goes further: Yamano Music owns 14% and Kanda Shokai owns 13%.

So 70% of the company is already in the hands of a venture capital company and two big Japanese music distributors. The Fender ownership group of 1985 is already highly diluted, and this will dilute it further.

Sure makes you wonder about the company's future.

Denis · March 09, 2012, 05:33:19 AM

I had absolutely no idea Fender's owners were a venture capital company and two Japanese concerns. Makes me wonder if more production will leave the US.

Pilgrim · March 11, 2012, 06:10:34 PM

They've picked up a lot of other lines in the past dew years - maybe too many?

dadagoboi · March 11, 2012, 06:50:46 PM

Quote from: Dave W on March 08, 2012, 10:10:58 PM
They are 43% owned by Weston Presidio Capital...So 70% of the company is already in the hands of a venture capital company

Private equity, not venture capital. The IPO won't even cover Fender's debts. The $100 million (or a large chunk of it) that won't be used to pay down debt will be going into their pockets. Mitt could explain how it works.

I feel better about the two Japanese companies with ownership stake than I do Weston Presidio. At least they are in the music business and have a reason to keep the business from going bankrupt. IMO it could be argued Fender still exists due to Japanese help in the 80s.

Dave W · March 11, 2012, 07:21:05 PM

Quote from: dadagoboi on March 11, 2012, 06:50:46 PM
Private equity, not venture capital. The IPO won't even cover Fender's debts. The $100 million (or a large chunk of it) that won't be used to pay down debt will be going into their pockets. Mitt could explain how it works.

Weston Presidio started as a venture capital company and that's how they earned their reputation. I agree that this is a private equity investment, and that's more of what they do now.

Quote from: dadagoboi on March 11, 2012, 06:50:46 PM
I feel better about the two Japanese companies with ownership stake than I do Weston Presidio. At least they are in the music business and have a reason to keep the business from going bankrupt. IMO it could be argued Fender still exists due to Japanese help in the 80s.

Same here. Still, it startled me to find out that so little of the company was in the hands of the 1980s management group that bought it from CBS. Bill Schultz and William Mendello were the principals of that group. According to the IPO, Schultz's widow now owns only 5.79% and Mendello only 4.79%.

dadagoboi · March 11, 2012, 07:43:29 PM

Did Schultz's widow and Mendello sell most of their investment to Weston Presidio?

Dave W · March 11, 2012, 09:08:38 PM

I remember reading that they wanted to cash out part of their holdings, but as I recalled it, the investor was Roland, not Weston. So I went looking and found this copy-and-paste on the Jackson Charvel forum, from 2005: http://www.jcfonline.com/threads/32609-Fender-buyout?s=52b845220e688ec20bb39aa9b5281b5b

dadagoboi · March 12, 2012, 05:40:17 AM

Nice research, Dave. Does not look good.

jumbodbassman · March 12, 2012, 09:21:12 AM

my guess is Gibson will follow as Henry will want to do as his competitors and oh by the way, take a nice dividend.

leftybass · March 12, 2012, 10:52:48 AM

The price for a "Pre-Weston Presidio Capital" Fender is gonna skyrocket!

Dave W · March 12, 2012, 11:48:01 AM

Weston Presidio had an interest in Guitar Center before Bain took it private, and IIRC one of the high ranking execs at Fender came from GC during that time. So Weston has some knowledge of the business and I don't think they will be setting the company up for asset stripping. The debt due in June 2014 could be a problem, but the long term prospects don't seem too bad. We'll just have to wait and see.

eb2 · March 12, 2012, 07:23:50 PM

I wouldn't be surprised if Fender bought into Guild, Charvel, Gretsch, Sunn, etc in order to jettison one or more when they need the cash. Trouble is, Fender typically makes a better guitar for less than they did 25 years ago. I don't care who owns them.

Dave W · March 12, 2012, 11:00:22 PM

Quote from: eb2 on March 12, 2012, 07:23:50 PM
I wouldn't be surprised if Fender bought into Guild, Charvel, Gretsch, Sunn, etc in order to jettison one or more when they need the cash. Trouble is, Fender typically makes a better guitar for less than they did 25 years ago. I don't care who owns them.

Trouble is, the only one of those brand worth a lot is Gretsch, and they don't own it at all, they just build and market it for Fred Gretsch Enterprises.

Jackson and Guild, maybe. Guild was in receivership and out of production when Fender bought them, the brand is in much better shape today than it ever was way back when.

Believe it or not, CBS still owned Fender when it bought Sunn.